Parental Preference, Heterogeneity, and Human Capital Inequality

In this article, I provide an empirical account of the human capital investment behavior of parents in the face of endowment differences among siblings. The data set used contains a three-wave panel of 4,030 individuals. The article presents a rare case in which endowments are measured explicitly. Health endowments are estimated from dynamic health production functions, while educational endowments are obtained from test scores. The simple score of the standard Raven's Colored Progressive Matrix (CPM) test is used to measure educational endowments. I use estimation procedures that combine an instrumental variables method with panel data estimators to control for endogeneity and heterogeneity. The results suggest that parents compensate for initial differences in health but reinforce initial educational differences among siblings. Hence, an educational subsidy aimed at reducing inequality may end up reinforcing the inequality that might exist in the absence of such subsidy. When parents invest more educational human capital in the able children, an educational subsidy aimed at reducing inequality may end up reinforcing the inequality that might exist in the absence of such subsidy. The same cannot be said about health.