BREAD Working Paper No. 434, November 2014

Extended Families and Child Well-being

Daniel LaFave, Duncan Thomas

Abstract

Studies of household behavior have established the distribution of resources among household members predicts spending and savings patterns. However, there is a paucity of evidence on the relationship between the well-being of individual family members and the distribution of resources within an extended family including non co-resident family members. Given the central role the family plays in many models of economic behavior, this is an important gap in the literature. Using rich longitudinal survey data from the Indonesia Family Life Survey (IFLS), evidence is presented on the relationship between three measures of health- and education-related human capital of children and the distribution of resources among extended family members. IFLS is ideally suited for this research since the survey collects detailed information about income and wealth from both co-resident and non co-resident family members. The empirical model is founded on a natural extension of the collective model of household decision-making (Chiappori, 1988, 1992) to the extended family. The model is particularly appealing in this context because it places few restrictions on preferences of individual family members and does not specify a specific bargaining mechansim that underlies negotiations. The collective model yields empirical tests of whether the behavior of family members is (Pareto) efficient. A special case of the model allows all family members to be completley altruisitc which is observationally equivalent to a unitary model of family behavior. That special case is rejected by the data. However, the restrictions of the efficient model are not rejected indicating that non co-resident family members are able to co-ordinate allocation decisions with respect to child human capital investments in such a way as to make no family member better off without another member being worse off.

Keywords: Extended families, collective rationality, early life human capital

JEL classification codes: D1, I0, J13

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