Preexisting inequalities in socioeconomic status can drive differences in children's cognitive skill development and parents' reactions to child development policies influencing policy effectiveness. To analyze the role of parental background and investments (nutrition diversity and schooling expenditure) in this process, I estimate a dynamic structural model using data from Indonesia. I find two main factors contribute to the adult skill gap: household income and parental education, which influences the productivity of investments. Using the model, I simulate three policies: unconditional cash transfers, nutrition, and schooling price subsidies. To compare their long-run effects on adult skills, I account for parents adjusting their investment behavior in response to policies. Given the same cost, a) subsidizing food prices is more effective than subsidizing schooling expenditure, and b) both are more effective than cash transfers. As I find nutrition and schooling to be complements, a price decrease incentivizes parents to increase both inputs. With cash transfers, parents also increase investments but increase consumption relatively more as price incentives do not change. Nutrition subsidies reduce inequality most effectively, as parents with lower education react stronger to food price changes and, consequently, increase child investments more than parents with higher education. They do so as they spend a larger share of investments on nutrition. Further, nutrition subsidies implemented alone are more cost-effective than any combination of the three policies.
This research has been financed by the European Research Council (ERC) through Starting Grant no. 804989.
Work in Progress
Income and the Demand for Food
with Marc F. Bellemare and Eeshani Kandpal
While microeconomic theory makes unambiguous predictions about the effects of income changes on the demand for specific types of food, empirical estimates of these effects typically suffer from important shortcomings having to do with internal validity, external validity, or both. On the internal validity front, most estimates of the effect of a change in income on the demand for food rely on identification assumptions that can be hard to defend. On the external validity front, those same estimates usually focus on a limited number of commodities or on a single, specific context. Using aggregate data from five randomized controlled trials across three continents and four countries each designed to study the impact of cash transfers, we take an aggregate look at the impact of exogenous income changes on food expenditures, which we use as a proxy for food demand. First, we find that a change in income causes expenditures to increase across all food categories. Second, we find empirical support for Bennett's Law, the empirical regularity whereby as incomes increase, consumers first substitute fine grains for coarse grains, and then protein for carbohydrates. Overall, expenditures on protein are most responsive to an exogenous change in income, followed by expenditures on staples. Finally, across all categories we consider, food seems to be a necessity.
Food Prices, Program Saturation and Cash Transfers
with Jed Friedman, Eeshani Kandpal and Patrick Premand
Early life shocks and human capital: skill development among Australian Aboriginal and Torres Strait Islander children
with Jacek Barszczewski