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Major depression is common, deleterious, and persistent across generations, thus making depression a crucial link between the economic fortunes of parents and children – albeit one that economists have largely neglected. A biological literature indicates that stressors causing depression in parents also cause depression in offspring through two mechanisms: parenting behaviors caused by parental depression and, potentially, epigenetic endowments. In this thesis, I explore these mechanisms and their relevance for the young adult outcomes of offspring. I utilize the Avon Longitudinal Study of Adults and Children (ALSPAC), which uniquely contains epigenetic data at birth of currently adult children. Furthermore, I develop an economic model of intergenerational mobility featuring depression as a facet of human capital, which aids interpretation of my findings and clarifies potential implications. My empirical findings indicate that parental depression, depression-associated parenting behaviors, and biological endowments play a key role in determining the young-adult outcomes of children. The child's adolescent depression mediates this relationship. Conditional on depression and other covariates, parental household income plays either a more modest role or no role, depending on the outcome variable considered. Meanwhile, child epigenetic data at birth explains twice the variance in the child's adolescent depression as does maternal depression in the subsample for which I have epigenetic data, providing suggestive evidence that biological endowments very early in life may establish a component of depression risk. ,To interpret my findings, I crystalize ideas from the biological literature in a simple economic framework. I treat the mechanisms generating depression as a technology of preference formation. Stress, parenting behaviors, and direct biological endowments form affective capital, where low affective capital manifests as depression. Affective capital enters directly into the utility function to reduce disutility of effortful actions, including labor market effort and parenting effort. Thus, high affective capital both increases earnings and increases parental investment in the affective capital of children. In this way, my model resembles a Becker-Tomes/habit formation hybrid. This model highlights how investments in the child's human capital may be income inelastic. I discuss additional implications of this model.


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