AKABAYASHI, HIDEO
On The Role of Incentives in The Formation of Human Capital in The Family
Ph.D. Dissertation, The University of Chicago, 1996
Cohort(s): Children of the NLSY79, NLSY79
ID Number: 2865
Publisher: UMI - University Microfilms, Bell and Howell Information and Learning

Permission to reprint the abstract has not been received from the publisher.

This research proposes a new view of the formation of human capital in the family. The traditional assumption has been to treat children's early characteristics as a result of "family background," in other words, an exogenous spillover from the parents. In contrast, I insist that the characteristics develop as human capital partly due to children's effort, and that parents' strategic intervention is important as incentives. My framework is used to interpret a variety of phenomena observed in child development and parent-child relationships. I first develop a game theoretic model between a myopic child and an altruistic parent with imperfect monitoring. It predicts that a particular type of parent's actions (e.g., praise and punishment) can be an endogenous input for the child's development by giving incentives for good effort. Psychologists have observed that an "authoritative" mother, who establishes firm control and admires her child's achievements, has children who are likely to be competent in their development. The implication of my model is consistent with this observation. I then test the prediction of the model using data of mother-child pairs from The Children Supplement of National Longitudinal Survey of Youth in 1986-92. I constructed measures of the severity and variation of a mother's "incentive actions" (punishing and praising) from variables in the Home Observation of the Environment (HOME). It is found that a child's effort is a good predictor of early intellectual development and is likely to be induced by the mother's intervening actions as predicted. Finally, the model is further extended to explain why in some families unstable parent-child relationships, such as "child abuse," may occur. I additionally assume that a parent cannot observe a child's human capital accumulation and that a child's discount factor develops endogenously as the child develops. I construct a model where a parent uses the Kalman filter to form belief s regarding a child's developing human capital. The model predicts that the parent's estimate of the child's effort may be divergent and negatively-biased due to the endogenous instability of the child's development process. This suggests the possibility of persistently punitive intervention.

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