Experimental & Behavioural Economics Seminar - James Berry (University of Delaware)

Room 315, Level 3, FBE Building, 111 Barry Street, Carlton

Map

More Information

Siqi Pan

siqi.pan@unimelb.edu.au

Title: Not Playing Favorites: An Experiment on Parental Preferences for Educational Investment

Abstract: How do parents choose to allocate investments across children? Do they maximize the returns to their investments (total household earnings), or equalize across their children because of an aversion to cross-sibling inequality? In this paper, we conduct the first experiment that identifies parents’ preferences for investing in their children’s education. The experiment exogenously varies the short-run returns to educational investments to identify the degree to which parents care about (a) maximizing total household earnings, (b) minimizing cross-sibling inequality in “outcomes” (i.e., childlevel earnings), and (c) minimizing cross-sibling inequality in “inputs” (i.e., the investments each child receives). We find that while parents care about both maximizing total household earnings and minimizing inequality in inputs, they place a high value on equality of inputs. Parents choose exactly equal inputs 35% of the time and forego 40-50% of their potential experimental earnings due to inequality aversion in inputs. In contrast, we find no evidence that parents are averse to inequality in outcomes.