| Abstract: |
We construct and estimate a model of child development in which both the
parents and children make investments in the child’s skill development. In
each period of the development process, partially altruistic parents act as
the Stackelberg leader and the child the follower when setting her own study
time. We then extend this non-cooperative form of interaction by allowing
parents to offer incentives to the child to increase her study time, at some
monitoring cost. We show that this incentive scheme, a kind of internal
conditional cash transfer, produces efficient outcomes and, in general,
increases the child’s cognitive ability. In addition to heterogeneity in
resources (wage offers and non-labor income), the model allows for
heterogeneity in preferences both for parents and children, and in monitoring
costs. Like their parents, children are forward-looking, but we allow children
and parents to have different preferences and for children to have age-varying
discount rates, becoming more “patient” as they age. Using detailed time diary
information on the allocation of parent and child time linked to measures of
child cognitive ability, we estimate several versions of the model. Using
model estimates, we explore the impact of various government income transfer
policies on child development. As in Del Boca et al. (2016), we find that the
most effective set of policies are (external) conditional cash transfers, in
which the household receives an income transfer given that the child’s
cognitive ability exceeds a prespecified threshold. We find that the
possibility of households using internal conditional cash transfers greatly
increases the cost effectiveness of external conditional cash transfer
policies. |