Timothée Demont : timothee.demont[at]univ-amu.fr
Alice Fabre : alice.fabre[at]univ-amu.fr
How do parents choose to allocate investments across children? Do they maximize the returns to their investments (total household earnings), or equalize across their children because of an aversion to cross-sibling inequality? In this paper, we conduct the first experiment that identifies parents’ preferences for investing in their children’s education. The experiment exogenously varies the short-run returns to educational investments to identify the degree to which parents care about (a) maximizing total household earnings, (b) minimizing cross-sibling inequality in “outcomes” (i.e., child-level earnings), and (c) minimizing cross-sibling inequality in “inputs” (i.e., the investments each child receives). We find that parents care about both maximizing total household earnings and minimizing inequality in inputs. Parents’ aversion to inequality in inputs is quantitatively important, with parents choosing exactly equal inputs 35% of the time and their aversion to inequality causing them to forego roughly 40-50% of their potential experimental earnings.