Genetic and Economic Interaction in the Formation of Human Capital: The Case of Obesity

Abstract:

Small genetic differences at birth confer a comparative advantage in health and human capital formation, and can lead to substantial inequality in long term social and economic outcomes. I develop a structural model of health and human capital formation illustrating the dynamic interaction between genetic inheritance and investments in health over the life cycle. Genetic heterogeneity across individuals can change the utility cost of investments and the production function of health, shifting the incentives to invest in healthy habits. Focusing on Body-Mass-Index (BMI) as a measure of poor health, I consider physical activity and food intake as investments in health, and I evaluate their interaction with specific variants in FTO and other genes associated with BMI in Genome-Wide Association Studies. Applying this model to two different datasets, one of British adolescents and one of US adults, I find that Gene-Environment interaction plays a pivotal role in the evolution of BMI. Food intake has a stronger impact on BMI for those individuals with a particular genetic makeup, and yet they tend to display a higher demand for food. The association of variants in the FTO gene with the hypothalamic regulation of food intake gives a biological foundation to the observed differences in healthy investments. This analysis provides an economic framework of health and human capital formation that integrates recent findings in genetics and molecular biology and sheds light on the interdependence between genes and economic choices of investment.