Parental Preferences and Inequality Within the Family: Evidence From Mexican Siblings

This paper develops and tests a simple model of parental allocations which stresses the effi ciency-equity tradeoff they face when investing in children of varying ability. The empirical component of the paper focuses on inequalities in schooling and child labour. Using siblingbased fixed effect models, I show that large differences in IQ test scores between siblings do not translate into large differences in schooling. The evidence also suggests that richer households compensate more than poorer ones. On child labour participation, the data show that there is a great deal of variation amongst brothers along this margin. If parents take compensating action they may be able to attenuate any harmful effects arising from these differences. I show that in fact there are substantial adverse effects: participation in paid employment during elementary school leads to rise of 8 percentage points in the probability of being affected by one of seven acute morbidity conditions. These results suggest that even if parents act to compensate along some dimensions, in the end they may be forced to pick and choose amongst their children for other allocations, leading to large inequalities. ∗Email: [email protected]