Children's Cognitive Abilities and Intrahousehold Parental Investment

Andrew Zuppann, University of Houston

I estimate how new information about children's ability leads parents to adjust investment within and across children. Using matched mother and child data from the National Longitudinal Survey of Youth 1979 and the National Longitudinal Survey of Youth 1979 - Children Sample, I show that parents respond to improvements in a child's cognitive abilities by devoting more resources towards that child and improving the child's home environment. In households with multiple children, positive information about one child leads to compensating investments in other children. This concern for equity within the household leads to underinvestment in high ability children relative to a hypothetical set of parents that care only about maximizing the joint output of the children. These results hold both for childhood outcomes such as test scores and adult outcomes such as educational attainment and wages.

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Presented in Session 213: Family Decision Making and Investment