Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Childhood health and educational investment under risk

Childhood health and educational investment under risk A huge literature shows that childhood health and educational attainment are highly correlated. However, estimates for the effect of childhood health on educational attainment under risk generally confound the effect of liquidity constraints and of lack of insurance against risk. It is unclear whether the correlation between health and education under uninsured risk would remain if the capital markets were perfect and household faced no liquidity constraints. This paper fills in this lacuna in the literature. We develop a two period model of investment in education when future labor earnings are stochastically dependent on current investments in schooling and health. It is found that when there is uninsured risk, then parental investment in a child’s education will be inefficient even in the presence of perfect capital markets. Under certain assumptions, there will be a positive correlation between childhood health and educational investment. Health inequalities will translate into educational inequalities in an environment of uninsured risk. We are able to show that when perfect insurance markets are present, investments in child health and schooling will be optimal. From the policy perspective, this argues for the development of insurance markets. The results also suggest that policy interventions that target higher levels of educational investment among the population need to account for the effect of childhood differences in health. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png IZA Journal of Labor & Development Springer Journals

Childhood health and educational investment under risk

Kumra, Neha
IZA Journal of Labor & Development , Volume 6 (1) – Jan 30, 2017
Download PDF
22 pages

Loading next page...
 
/lp/springer-journals/childhood-health-and-educational-investment-under-risk-0bDhopr8FC
Publisher
Springer Journals
Copyright
Copyright © 2017 by The Author(s).
Subject
Economics; Labor Economics; Population Economics; Development Economics
eISSN
2193-9020
DOI
10.1186/s40175-016-0068-4
Publisher site
See Article on Publisher Site

Abstract

A huge literature shows that childhood health and educational attainment are highly correlated. However, estimates for the effect of childhood health on educational attainment under risk generally confound the effect of liquidity constraints and of lack of insurance against risk. It is unclear whether the correlation between health and education under uninsured risk would remain if the capital markets were perfect and household faced no liquidity constraints. This paper fills in this lacuna in the literature. We develop a two period model of investment in education when future labor earnings are stochastically dependent on current investments in schooling and health. It is found that when there is uninsured risk, then parental investment in a child’s education will be inefficient even in the presence of perfect capital markets. Under certain assumptions, there will be a positive correlation between childhood health and educational investment. Health inequalities will translate into educational inequalities in an environment of uninsured risk. We are able to show that when perfect insurance markets are present, investments in child health and schooling will be optimal. From the policy perspective, this argues for the development of insurance markets. The results also suggest that policy interventions that target higher levels of educational investment among the population need to account for the effect of childhood differences in health.

Journal

IZA Journal of Labor & Development – Springer Journals

Published: Jan 30, 2017

References

  • Child health and school enrollment: a longitudinal analysis
    Alderman, H; Behrman, J; Lavy, V; Menon, R
  • Individual choice under certainty and uncertainty, vol. 3
    Arrow, K
  • Uncertainty and investment in health
    Chang, F
  • Health, investment in health, and occupational choice
    Cropper, ML
  • Interpreting the evidence on life cycle skill formation
    Cunha, F; Heckman, J; Lochner, L; Masterov, D
  • Is the impact of health shocks cushioned by socioeconomic status? The case of low birth weight
    Currie, J; Hyson, R
  • Uncertainty, inequalities in health and the demand for health
    Dardanoni, V; Wagstaff, A
  • An economic analysis of children’s health and intellectual development
    Edwards, L; Grossman, M
  • Economic aspects of health
    Fuchs, VR
  • Food for thought: basic needs and persistent educational inequality
    Galor, O; Mayer, D
  • Estimating interdependence between health and education in a dynamic model
    Gan, L; Gong, G
  • Child development in developing countries. Development potential in the first 5 years for children in developing countries
    Grantham-McGregor, S; Cheung, VB; Cueto, S; Glewwe, P; Richter, L
  • The demand for health: a theoretical and empirical estimation
    Grossman, M
  • On the concept of health capital and the demand for health
    Grossman, M
  • Risk, financial markets, and human capital in a developing country
    Jacoby, H; Skoufias, E
  • Health behavior, health knowledge and schooling
    Kenkel, D
  • The effect of risk on the investment in human capital
    Levhari, D; Weiss, Y
  • Market failures in health and education: investment for the young, Mexico
    Mayer-Foulkes, D
  • Health status and schooling decisions of young men
    Perri, T
  • Who receives medical care? Income, implicit prices, and the distribution of medical services among pregnant women in the United States
    Rosenzweig, MR; Schultz, TP
  • Uncertainty and health care spending by the poor: the health capital model revisited
    Selden, TM