Evidence from India shows that inequality between children starts at home, when parents decide how to split investments in education between their children
Investing in education is arguably one of the most important and consequential choices that parents make for their children. These choices impact children’s long-run wellbeing along several dimensions including employment and earnings (Currie and Almond 2011). But when parents have multiple children, how do they distribute limited resources between them? Do parents invest more in higher-ability children, exacerbating inequality in a society, or do they compensate for these differences, acting as equalisers? Understanding how parents invest in their children’s education and what determines this decision is fundamental to designing effective educational policies. Since parents can respond to public programmes by changing the level of inputs they privately provide to their children, the overall effectiveness of these policies still depends on decisions within the household (Das et al. 2013). This is particularly important in developing countries, where social protection systems are less well established, and families are the primary providers of support to their children.
In recent research (Giannola 2023), I investigate these questions in the Indian context, using an experiment implemented with poor households with children in the urban slums of Cuttack, a mid-sized city in the eastern state of Odisha.
Inequality between children starts at home
Data from several developing countries shows that an important share of the overall level of inequality in child human capital that we observe is driven by inequalities between siblings. Figure 1 plots the share of total variation in child educational outcomes that can be attributed either to differences between children from the same family (within-household inequality) or to differences between families (between-households inequality). The figure shows that, across countries, within-household inequality accounts for between 30 to 40% of the total variation in children’s outcomes (the darker bar in the graph). In India, the setting where this study was conducted, inequality between siblings accounts for 32% of the overall level of inequality. These figures demonstrate the importance of studying within-household inequality to better understand the overall levels of poverty and inequality that we observe in a society.
Figure 1: Contribution of intra-household inequality to child human capital inequality
Notes: This figure plots for each country the share of total variation in child outcomes that can be explained by differences between children from the same family (within-household inequality or share within) or to differences between different families (between-households inequality or share between). Source: Demographic and Health Surveys (ICF International (2023)).
What do economic theories suggest about parents’ investment?
Economic models suggest that different factors might affect parents’ decision about how to invest in their children’s education. First, parents might have some preferences over children’s outcomes. For instance, they might care about allocating resources in a way that maximises the overall return from their investments (potentially exacerbating pre-existing inequalities between siblings), or they might want to invest in a way that minimises differences between kids (Becker and Tomes 1976). Second, parents’ behaviour will depend on how they perceive their choices will affect children’s outcomes in the future (Cunha et al. 2013). For example, parents might perceive that some children have higher returns to education than others. At the same time, another important determinant of these decisions are family resources, as poor families with limited investment possibilities might be unable to provide the same opportunities to all their children.
In sum, many factors might be at play, but disentangling between them is hard using observed patterns of parental investments. For example, unequal investments between siblings might depend on parents’ preference for maximising returns or on limited household resources. Nonetheless, distinguishing between these alternative explanations is important when thinking about the effects of many polices. Consider programmes that transfer educational resources to poor households. The effects of these programmes will depend on how parents distribute these additional resources to their kids. If limited resources were the reason for unequal investments, then the policy should reduce cross-sibling differences. However, if parents seek to maximise returns, the policy could increase within-household inequality (e.g., Barrera-Osorio et al., 2011).
An experiment to understand parents’ behaviour
To shed light on how parents make investment decisions in their children’s education, and understand the role that preferences, perceptions and constraints have in explaining behaviour, I designed and implemented a survey experiment with poor families with children of primary-school-age living in the urban slums of Cuttack, the second largest city in the state of Odisha, India.
The experiment consisted of two stages that served distinct purposes. The goal of the first stage experiment was to understand how parents reason about investing in children’s education and, specifically, how they perceive the choices they make today will impact the outcomes of their children further down the line when they are adults. To this aim, I asked parents to report the expected outcome of the children in a set of scenarios that varied the level of resources invested and the initial ability of the child.
The second stage experiment had the objective of studying parents’ behaviour in a controlled setting – akin to a lab – to isolate whether they invested more in higher- or lower-ability children and how these choices were affected by family resources. In this experiment, I asked respondents to choose their preferred distribution of resources between children in different scenarios that varied the total resources available to invest and the initial ability levels of the children. Combining choices made in the second stage experiments with perceptions elicited in the first stage further allowed me to identify parents’ preferences.
Parents perceive higher returns for, and invest more in, higher-ability children, especially when resource-constrained
I show that parents perceive higher spending on educational inputs in primary school (e.g. to provide private tutoring to their child, pay for school fees, supplies or books) to have a positive return on children’s outcomes when adults, measured in terms of earnings at age 30. Importantly, parents also believe that the return to each Rupee spent on a higher-achieving child is larger compared to investing the same Rupee in a lower-achieving child.
I further find that parents favour higher-achieving children when deciding how to distribute educational inputs, suggesting that families in this context magnify ability-based inequalities between children. This reinforcing investment behaviour is significantly more pronounced when parents have limited resources available to invest: the gap in investments between higher- and lower-achieving children is halved when household resources are higher. Choices made in the second stage, combined with information on parental beliefs from the first stage, suggest that parents weigh efficiency considerations (i.e. maximising returns) more than inequality concerns (i.e. minimising differences between children).
To validate the results of the survey experiment, I use data on actual (rather than hypothetical) investments made by parents in their own (rather than hypothetical) children and show that there is strong relation between choices made in the experiment and real-world behaviour. Specifically, respondents identified as less inequality averse in the experiment spend more unequally in their children’s education, favouring their higher-ability child.
What do we learn from this?
The findings have several implications for policy. First, the results that parent decide how to distribute educational opportunities between children based on the perceived returns to investments is important in light of recent policies that have been put in place to increase parents’ perceived returns to investments as a way to improve how they invest in their kids. I show that these policies might have unequal effects on children because of parents’ responses, as resource-constrained parents might cut back investments in lower-ability children in favour of higher-ability ones in response to the policy. My results also highlight the existence of a link between poverty and intra-household allocations, and empirically demonstrate that “discrimination is stronger in a time of crisis” (Duflo, 2005). This suggests that transferring resources to poor households could disproportionately benefit lower-achieving children reducing cross-siblings inequality in inputs, and that sheltering poor families from negative economic shocks might be particularly important to protect weaker kids that would otherwise be left behind.
More generally, the results imply that that, to the extent that parents are the ultimate decision makers, it is necessary to understand their behavioural responses to predict the impacts of different policies on the well-being of individual household members.
References
Barrera-Osorio, F, M Bertrand, L L Linden, and F Perez-Calle (2011), "Improving the design of conditional transfer programs: Evidence from a randomized education experiment in Colombia," American Economic Journal: Applied Economics, 3(2): 167–95.
Becker, G S, and N Tomes (1976), "Child endowments and the quantity and quality of children," Journal of Political Economy, 84(4, Part 2): S143–S162.
Cunha, F, I Elo, and J Culhane (2013), "Eliciting maternal expectations about the technology of cognitive skill formation," National Bureau of Economic Research.
Currie, J, and D Almond (2011), "Human capital development before age five," in Handbook of Labor Economics, Vol. 4, Elsevier: 1315-1486.
Das, J, S Dercon, J Habyarimana, P Krishnan, K Muralidharan, and V Sundararaman (2013), "School inputs, household substitution, and test scores," American Economic Journal: Applied Economics, 5(2): 29-57.
Duflo, E (2005), "Gender equality in development," BREAD Policy Paper, 11(4).
Giannola, M (2023), "Parental investments and intra-household inequality in child human capital: evidence from a survey experiment," The Economic Journal, uead086.
ICF International (2023), "The DHS program website," Funded by USAID, http://www.dhsprogram.com (last accessed: 19 September 2023).