The psycho-biological foundations of human capital and dynamics of income inequality

It is well accepted that human capital is the source of long-run growth, as it engenders technological innovation. Where, then, do individual differences in human capital come from? Recent studies show that genetics and family environment are the primary contributors to cognitive ability. Considering genetics and family structure as the building blocks of human capital stands in contrast to the literature that models human capital as purely education or experience. The purpose of this dissertation is two fold: (i) to develop a general equilibrium model that links population genetics and environmental influences to economic growth and (ii) to utilize this model to investigate the implications for the economic growth and the dynamics of income inequality. How human capital and marriage impact economic growth and income inequality is investigated in three separate studies.; The first study builds an age-structured model of population genetics in which explicit individual choices drive the dynamics via sexual selection. The simulated model shows that institutional factors significantly impact economic performance by affecting the intergenerational transmission of genes via marriage. The principal novel findings are that (i) genetic diversity has a nonmonotone causal impact on economic performance; (ii) an endogenous population threshold exists which causes societies with declining populations and outputs to reverse course and grow; and (iii) that emotion love substantially accelerates economic growth by increasing genetic diversity ‘just enough,’ which we term ‘The Goldilocks Principle’.; The second study investigates the role of household formation on income distribution dynamics. Personal characteristics are transmitted from parents to children resulting in intergenerational persistence of marriage patterns and household income. Further, psychological factors allow fads and fashions to impact distributional dynamics. The simulation results examine that psychological factors affecting marriage explain a substantial proportion of income distribution dynamics.; The last study examines the extent to which changes in household formation exacerbated income inequality in the US during the last two generations. Using a time varying parameter model, the impact on how marriage decisions, changes in human capital, and fertility choices influence inequality is estimated. The estimation results show that marital sorting evolves over time and positively and increasingly affects the inequality, and the inter generational transmission of human capital induces path-dependent income distribution dynamics.