Working Paper: CEPR ID: DP3107
Authors: Dan Anderberg; Alessandro Balestrino
Abstract: Due to the presence of borrowing constraints in the market, the cost of educating the young members of a family is often borne by the adults. We consider intrafamily financing of human capital under the assumptions that individuals are selfish and binding contracts are not feasible. Cooperation among family members is possible through a family norm (a family ?social capital?) which prescribes the obligations to be met at each stage in life and sanctions for those who deviate. We note that it is crucial that transfers to education are combined with intrafamily transfers to old-family members. We characterise the set of self-enforcing transfers and show that there is a downward bias in the family provision of education. This gives a rationale for public action as a remedy to the lack of commitment between selfish family members. The analysis also points to a number of potential effects of education policy and public pensions on human capital formation.
Keywords: education policy; human capital investments; intergenerational trade; self-enforceable transfers
JEL Codes: D91; H22; I21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Transfers from adults to family members (D15) | Education investments (H52) |
| Lack of enforceable contracts (D86) | Investments in human capital (J24) |
| Education policies enhance self-enforcing mechanisms (H52) | Effectiveness of education policies (H52) |
| Effective education policy (I28) | Sustainable level of intrafamily investments (D14) |