The Economics and Econometrics of Gene-Environment Interplay

TL;DR

This paper discusses how genetic data can be used in economics to understand the interaction between genes and environment, aiding in testing theories and analyzing policy impacts.

Contribution

It introduces a framework for incorporating genetic data into economic analysis, highlighting its potential to test theories and uncover mechanisms without requiring direct genetic effect estimation.

Findings

Genetic data can improve understanding of economic behavior.

Gene-environment interactions help analyze policy effects.

Practical guidance for empirical researchers is provided.

Abstract

Economists and social scientists have debated the relative importance of nature (one's genes) and nurture (one's environment) for decades, if not centuries. This debate can now be informed by the ready availability of genetic data in a growing number of social science datasets. This paper explores the potential uses of genetic data in economics, with a focus on estimating the interplay between nature (genes) and nurture (environment). We discuss how economists can benefit from incorporating genetic data into their analyses even when they do not have a direct interest in estimating genetic effects. We argue that gene--environment (GxE) studies can be instrumental for (i) testing economic theory, (ii) uncovering economic or behavioral mechanisms, and (iii) analyzing treatment effect heterogeneity, thereby improving the understanding of how (policy) interventions affect population subgroups. We introduce the reader to essential genetic terminology, develop a conceptual economic model to interpret gene-environment interplay, and provide practical guidance to empirical researchers.