Empirical Strategies to Eliminate Life-Cycle Bias in the Intergenerational Elasticity of Earnings Literature

I argue that the empirical strategies for estimation of the intergenerational elasticity of lifetime earnings that are currently employed in the literature might not eliminate bias arising from life-cycle effects. Specifically, I demonstrate that procedures based on the generalized errors-in-variables model suggested by Haider and Solon (2006) or the consideration of differential earnings growth rates across subpopulations may not yield unbiased or consistent estimates. I further argue that instrumental variable estimators will not identify an upper bound for the true population parameter.intergenerational mobility, intergenerational elasticity of earnings, life-cycle bias, generalized errors-in-variables model

Free to Trust? Economic Freedom and Social Capital

We present new evidence on how generalized trust is formed. Unlike previous studies, we look at the explanatory power of economic institutions, we use newer data, we incorporate more countries, and we use instrumental variables to handle the causality problem. A central result is that legal structure and security of property rights (area 2 of the Economic Freedom Index) increase trust. The idea is that a market economy, building on voluntary transactions and interactions with both friends and strangers within the predictability provided by the rule of law, entails both incentives and mechanisms for trust to emerge between people.social capital; trust; economic freedom; rule of law; property rights; legal system