nep-neu New Economics Papers
on Neuroeconomics
Issue of 2022‒12‒19
two papers chosen by

  1. Cognitive Decline and Dynamic Selection By Michael E. Darden
  2. Paying Moms to Stay Home: Short and Long Run Effects on Parents and Children By Gruber, Jonathan; Huttunen, Kristiina; Kosonen, Tuomas

  1. By: Michael E. Darden
    Abstract: Understanding cognitive health, its decline, and the investments that shape its age profile in later life are important in an aging society, and yet, estimating the cognitive health production function is complicated by non-random mortality and sample attrition. I study this dynamic selection problem in the context of education, race, and cigarette smoking, characteristics thought to affect the level, but not slope, of cognitive decline. I develop a general framework that involves estimation of a system of dynamic equations consistent with the Grossman (1972) model. Exploiting exciting longitudinal data from the National Health and Aging Trends Study (NHATS), I find substantially wider gaps in cognitive health by these characteristics relative to cross-sectional comparisons, in some cases by 100%. Furthermore, these gaps grow in age, which suggests that the bias generated by dynamic selection is not constant. The implication of these results is that theories of cognitive decline need to accommodate differential rates of change -- rather than just differences in levels -- in cognitive health by education and race. Connecting theory and empirical work offers an important tool for economists studying health investment and health in older populations.
    JEL: I10 I12 J24
    Date: 2022–11
  2. By: Gruber, Jonathan; Huttunen, Kristiina; Kosonen, Tuomas
    Abstract: We study the impacts of a policy designed to reward mothers who stay at home rather than join the labor force when their children are under age three. We use regional and over time variation in child home care allowance to show that home care allowance decreases maternal employment in both the short and long term, with almost three-quarters of the supplement amount offset by lost labor income. The effects are large enough for the existence of home care benefit system to explain the higher child penalty in Finland than comparable nations. Home care benefits also negatively affect the early childhood cognitive test results of children at the age of five, increase the likelihood of choosing vocational rather than academic secondary education track, and increase youth crimes. We confirm that the mechanism of action is changing work/home care arrangements by studying a a day care fee (DCF) reform had the opposite effect of raising incentives to work. We find that this policy increased the labor force participation of mothers and participation of children to day care, and improved child early test and schooling outcomes. This parallel set of findings suggests that on average in Finland, shifting child care from the home to the market increases labor force participation and improves child outcomes.
    Keywords: home care allowance, employment, child development, schooling, Social security, taxation and inequality, J13, J21, J38, fi=Koulutus|sv=Utbildning|en=Education|, fi=Sosiaaliturva|sv=Social trygghet|en=Social security|, fi=Työmarkkinat|sv=Arbetsmarknad|en=Labour markets|,
    Date: 2022

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.