Discussion Paper Details

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Title: Partial Insurance and Investments in Children

Author(s): Pedro Carneiro and Rita Ginja

Publication Date: April 2015

Keyword(s): human capital and insurance

Programme Area(s): Labour Economics

Abstract: This paper studies the impact of permanent and transitory shocks to income on parental investments in children. We use panel data on family income, and an index of investments in children in time and goods, from the Children of the National Longitudinal Survey of Youth. Consistent with the literature focusing on non-durable expenditure, we find that there is only partial insurance of parental investments against permanent income shocks, but the magnitude of the estimated responses is small. We cannot reject the hypothesis full insurance against temporary shocks. Another interpretation of our findings is that there is very little insurance available, but the fact that skill is a non-separable function of parental investments over time results in small reactions of these investments to income shocks, especially at later ages.

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Bibliographic Reference

Carneiro, P and Ginja, R. 2015. 'Partial Insurance and Investments in Children'. London, Centre for Economic Policy Research.