Human capital, heterogeneity and estimated degrees of intergenerational mobility

We study the parental investment model of intergenerational mobility. where heterogeneity in 'innate' earnings ability and parents' altruism rate is explicitly modelled. We show;hat heterogeneity increases the difficulty of detecting the existence of borrowing constrained families. Conversely, the presence of heterogeneity means that economic and linear statistical models of inheritance generate similar intergenerational data on consumption and earnings. We also suggest that nay cross-country differences in intergenerational earnings mobility are more readily interpreted according to the heterogeneity of inherited ability, rather than optimal family responses to country-specific institutions for accumulating human capital.