This paper studies how early health shocks affect child’s human capital formation. We first formulate a theoretical model to understand how early health shocks affect child outcomes through parental responses. We nest a dynamic model of human capability formation into a standard intra-household resource allocation framework. By allowing multidimensionality of child endowments, we allow parents to compensate and reinforce along different dimensions. We then test our main empirical predictions using a large-scale Chinese child twins survey, which contains detailed information on child- and parent-specific expenditures. We can differentiate between investment in money and investment in time. On the one hand, we find evidence of compensating investment in child health but of reinforcing investment in education. On the other, we find no change in the time spent with the child. We confirm that an early health insult negatively affects the child under several different domains, ranging from later health, to cognition, to personality. We also show that early health shocks negatively affect parental expectations, but do not change the child’s perceptions of parental behavior. This suggests that the effects of early health shocks mainly operate through the budget constraint, not through preferences.
Gabriella Conti, Department of Economics, University of Chicago
Date & time:
19 Apr 2010 15:00 pm - 19 Apr 2010 16:30 pm
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