Events

Economics Seminar

Authors:

• Junjian Yi
  The Chinese University of Hong Kong

• Junsen Zhang
  Chinese University of Hong Kong

• Gabriella Conti
  University of Chicago

• James J. Heckman
  University of Chicago

This paper studies how early health shocks affect child's human capital formation. We first formulate a theoretical model to understand how early health shocks affect child outcomes through parental responses. We nest a dynamic model of human capability formation into a standard intra- household resource allocation framework. By allowing multidimensionality of child endowments, we allow parents to compensate and reinforce along different dimensions. We then test our main empirical predictions using a Chinese child twins survey, which contains detailed information on child- and parent-specific expenditures. We can differentiate between investments in money and investments in time. On the one hand, we find evidence of compensating investment in child health but of reinforcing investment in education. On the other, we find no change in the time spent with the child. We confirm that an early health insult negatively affects the child under several different domains, ranging from later health, to cognition, to personality. Our findings suggest caution in interpreting reduced-form estimates of the effects of early life shocks: in the presence of both compensating and reinforcing behavioral responses, they cannot even be unambiguously interpreted as upper or lower bounds of the biological effects.