Economics Letters 112 (2011) 85–87 Contents lists available at ScienceDirect Economics Letters journal homepage: www.elsevier.com/locate/ecolet Intergenerational transmission of preferences Erwin H. Bulte a,∗ , Richard D. Horan b a Wageningen University, Tilburg University, P.O. Box 8130, 6700 EW Wageningen, Netherlands b Michigan State University, United States article info Article history: Received 25 June 2010 Received in revised form 31 January 2011 Accepted 30 March 2011 Available online 16 April 2011 JEL classification: D1 Z1 Keywords: Endogenous preferences Transmission of preferences Evolving norms Dynamics of culture abstract We propose a perfect empathy model of cultural transmission to capture the evolution of preferences in a population. Unlike existing imperfect empathy models, focusing on stable interior equilibria, we demonstrate that a corner outcome will eventuate. However, which corner outcome emerges is unknown, and depends on the interplay of ‘‘history’’ and ‘‘expectations’’. © 2011 Elsevier B.V. All rights reserved. 1. Introduction The canonical model of utility maximization in economics as- sumes preferences are given. But preferences are not written in stone—they evolve over time. The economics literature distin- guishes between two approaches to capture the evolution of pref- erences. First, the indirect evolutionary approach postulates that preferences determine payoffs via their effect on behavior. Inso- far as success translates into greater reproductive success (or in- vites copying), evolutionary pressures will shape the distribution of preferences in society (e.g., Dekel et al., 2007). 1 Second, the cul- tural transmission approach argues that parents ‘‘invest’’ in so- cializing their offspring, imprinting certain preferences, values and beliefs in the next generation. Two models of cultural transmission exist. Models of imperfect empathy assume parents prefer their offspring to have similar pref- erences or beliefs as they themselves have (e.g. Bisin and Verdier, 2000, 2001a,b) hereafter BV, (Tabellini, 2008), and evaluate future ∗ Corresponding author. Tel.: +31 317 485286; fax: +31 317 484360. E-mail addresses: Erwin.bulte@wur.nl (E.H. Bulte), horan@msu.edu (R.D. Horan). 1 Examples of the application of evolutionary models to explain the evolution of time, risk and social preferences include (Robson, 2001; Robson and Samuelson, 2007; Netzer, 2009). payoffs for offspring using their own preferences. This approach reflects the deep value associated with certain preferences (pro- social preferences, trusting behavior, etc.). In contrast, models of perfect empathy assume parents want to imprint sets of prefer- ences in their offspring aimed at maximizing the children’s pay- offs. A small literature on imperfect empathy models has emerged, but little systematic work has been done in the domain of im- printing preferences for maximum offspring payoffs. Perhaps this is because such models appear reminiscent of the literature on evolution and replicator dynamics. For example, BV 2001 write that ‘‘cultural transmission mechanisms characterized by perfect altruism imply dynamics of the distribution of preferences which converge to degenerate distributions concentrated on those pref- erences which maximize fitness’’ (p. 278). This is also what hap- pens in a model where evolutionary pressure selects for maximum fitness. However, the commonality between cultural transmission models and evolutionary pressures is only superficial. They are fundamentally different in the following sense: evolutionary pressures operate strictly via differences in current performance, cultural transmission accounts for the future as well. That is, since parents consider the future and form expectations about the environment within which their offspring will reside, the eventuating equilibrium trajectories and steady states may be quite different, depending on these expectations. That is the focus 0165-1765/$ – see front matter © 2011 Elsevier B.V. All rights reserved. doi:10.1016/j.econlet.2011.03.040