Family linkages,social interactions,and investment in human capital: A theoretical analysis |
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| Institution: | 1. HSBC Business School, Peking University, Shenzhen, China;2. University of Wisconsin-Madison, Madison, WI, United States;1. Department of International Economics & Trade, Nanjing University, 22 Hankou Road, Nanjing, 210093, PR China;2. School of International Trade and Economics, Central University of Finance and Economics, 39 South College Road, Haidian District, Beijing, 100081, PR China;1. ICREA Research Professor, Universitat Pompeu Fabra, Barcelona IPEG, Barcelona GSE, Spain; New Economic School, Russia;2. Professor of Economics and Political Science, and Gorter Family Professor of Islamic Studies, Duke University, USA;3. Research Scholar, Stanford Center for International Development, Stanford Institute for Economic Policy Research, Stanford University, USA;1. Department of Sport Science, Bielefeld University, Universitätsstraße 25, D-33615 Bielefeld, Germany;2. Department of Economics, Braunschweig Institute of Technology, Abt-Jerusalem-Str. 7, D-38106 Braunschweig, Germany;3. Department of Economics, University of Cologne, Albertus-Magnus-Platz, D-50923 Cologne, Germany;4. Departments of Management and Economics, College of Business and Economics, California State University, East Bay, 25800 Carlos Bee Boulevard, Hayward, CA 94542-3066, USA;1. IRES, Université catholique de Louvain, Belgium & CEPR, London, UK;2. Department of Economic History & Center for Economic Demography, Lund University, Sweden |
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| Abstract: | This paper introduces parent–child interactions into the Beckerian model of human capital. The acquisition of human capital, jointly determined by parental investment and child effort, is an equilibrium outcome of the intergenerational interactions, which is Pareto efficient within the family. We show that the equilibrium output of human capital is not affected by the parental authority over child behavior, but it is usually lower than the level that maximizes the instantaneous aggregate family welfare. In a family with more than one child, siblings not only compete for parental investments but also directly interact with each other in their effort choices. Exploring intragenerational connections and their interplay with intergenerational forces, we present a more complete theory of family linkages in human development and its implications for the rise and fall of families. Social interactions among children from different families induce intragenerational feedback effects that are further amplified by intrafamily interactions and accelerate regression toward the mean in the economic status of families. |
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