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Offspring’s Uncertainty and Dynastic Decisions: Evidence from Urban China

Author

Listed:
  • Fan, Ying

    (Department of Building and Real Estate, The Hong Kong Polytechnic University)

  • Wang, Yidi

    (Department of Economics, Communication University of Beijing, China)

  • Yang, Zan

    (Department of Real Estate and Construction Management, Royal Institute of Technology)

Abstract

We investigate the impact of offspring’s income uncertainty associated with college enrollment on intergenerational decisions. We exploit the experiment of the national college entrance examination (NCEE) reform in China, which increases the uncertainty of households containing students of compulsory education age. Based on comprehensive survey data, we find that 1) offspring’s uncertainty arising from the NCEE reform significantly decreases household total consumption and shifts consumption structures toward intergenerational inputs and housing purchases; 2) additional housing demand can be attributed to a dynastic precautionary motivation, which has heterogeneous effects based on a status quo bias toward exposure to and perception of the reform; 3) the inclusion of illiquid housing assets tilts the portfolio of households toward safe and liquid financial assets, and this allocation adjustment makes households financially worse off.

Suggested Citation

  • Fan, Ying & Wang, Yidi & Yang, Zan, 2024. "Offspring’s Uncertainty and Dynastic Decisions: Evidence from Urban China," Working Paper Series 24/4, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    • Handle: RePEc:hhs:kthrec:2024_004
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    More about this item

    Keywords

    offspring’s uncertainty; national college entrance examination; consumption; asset allocation; China;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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