Working Paper: CEPR ID: DP5339
Authors: Sascha O. Becker; Samuel Bentolila; Ana Fernandes; Andrea Ichino
Abstract: In this paper, we propose a theoretical model to study the effect of income insecurity of parents and offspring on the child's residential choice. Parents are partially altruistic toward their children and will provide financial help to an independent child when her income is low relative to the parents'. We show that first-order stochastic dominance (FOSD) shifts in the distribution of the child's future income (or her parents') will have ambiguous effects on the child?s residential choice. The analysis identifies altruism as the source of ambiguity in the results. If parents are selfish or the joint income distribution of parents and child places no mass on the region where transfers are provided, a FOSD shift in the distribution of the child?s (parents?) future income will reduce (raise) the child?s current income threshold for independence.
Keywords: Emancipation; Job Security; Option Value
JEL Codes: D1; J1; J2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Parental income insecurity (D19) | Child's residential choice (R21) |
| Shifts in parents' future income (D15) | Child's residential choice (R21) |
| Parental altruism (D64) | Child's residential choice (R21) |
| Increase in parental income (J12) | Child's income threshold for independence (J13) |
| Selfish parents (J12) | Child's income threshold for independence (J13) |
| FOSD shifts in child's income distribution (D39) | Child's residential decisions (K36) |
| Parental transfers (D15) | Child's residential decisions (K36) |