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Three Essays on Family Economics Iowa State University Capstones, Theses and Graduate Theses and Dissertations Dissertations 2020 Three essays on family economics Jia Cao Iowa State University Follow this and additional works at: https://lib.dr.iastate.edu/etd Recommended Citation Cao, Jia, "Three essays on family economics" (2020). Graduate Theses and Dissertations. 17871. https://lib.dr.iastate.edu/etd/17871 This Thesis is brought to you for free and open access by the Iowa State University Capstones, Theses and Dissertations at Iowa State University Digital Repository. It has been accepted for inclusion in Graduate Theses and Dissertations by an authorized administrator of Iowa State University Digital Repository. For more information, please contact [email protected]. Three essays on family economics by Jia Cao A dissertation submitted to the graduate faculty in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Major: Economics Program of Study Committee: Elizabeth Hoffman, Major Professor Joshua L. Rosenbloom Sunanda Roy John V. Winters Wendong Zhang The student author, whose presentation of the scholarship herein was approved by the program of study committee, is solely responsible for the content of this dissertation. The Graduate College will ensure this dissertation is globally accessible and will not permit alterations after a degree is conferred. Iowa State University Ames, Iowa 2020 Copyright c Jia Cao, 2020. All rights reserved. ii DEDICATION I would like to dedicate this dissertation to my major professor Elizabeth (Betsy) Hoffman without whose support I would not have been able to complete this work. iii TABLE OF CONTENTS Page LIST OF TABLES . .v LIST OF FIGURES . vi ACKNOWLEDGMENTS . vii ABSTRACT . ix CHAPTER 1. INTRODUCTION . .1 CHAPTER 2. SOCIAL MOBILITY ACROSS THREE GENERATIONS: EVIDENCE FROM CHINA ..............................................3 2.1 Introduction . .3 2.2 Literature Review . .5 2.3 The Model . .7 2.3.1 The Case of AR(1) Process . .7 2.3.2 The Case of AR(2) Process . .9 2.4 The Data . 10 2.5 Empirical Analysis . 12 2.5.1 Basic Regression Equation . 12 2.5.2 Basic Regression Results . 12 2.5.3 Uncle and Aunt Effects . 13 2.5.4 Exogenous Shock . 14 2.5.5 Robustness . 16 2.6 Conclusions . 18 CHAPTER 3. MODELING PARENTAL LOVE: WARM GLOW OR PURE ALTRUISM? . 19 3.1 Introduction . 19 3.2 Literature Review . 20 3.3 The Model . 22 3.3.1 The Case of Warm Glow . 22 3.3.2 The Case of Pure Altruism . 29 3.4 An Example . 33 3.4.1 Case One: Unskilled Workers . 34 3.4.2 Case Two: Skilled Workers as Borrowers . 36 3.4.3 Case Three: Skilled Workers as Lenders . 38 3.5 Conclusions . 39 iv CHAPTER 4. FERTILITY, PURE ALTRUISM AND HYPERBOLIC DISCOUNTING . 41 4.1 Introduction . 41 4.2 The Model . 44 4.2.1 Model 1: A Naive Agent's Commitment Problem . 45 4.2.2 Model 2: A Sophisticated Agent's Time-Consistent Problem . 49 4.3 An Example . 54 4.3.1 Model 1: A Naive Agent's Commitment Problem . 55 4.3.2 Model 2: A Sophisticated Agent's Time-Consistent Problem . 55 4.3.3 Discussion . 56 4.4 Conclusions . 56 BIBLIOGRAPHY . 58 APPENDIX. PROOF OF CHAPTER 2 . 61 .1 The Proof of AR(1) Case . 61 .2 The Proof of AR(2) Case . 62 v LIST OF TABLES Page Table 2.1 Sample Characteristics . 11 Table 2.2 Basic Regression Results . 12 Table 2.3 Regression Results with Uncle and Aunt Effects . 14 Table 2.4 Regression Results to Explore Same-Gender Preferences . 15 Table 2.5 Regression Results of Father's on Dummy Variable . 15 Table 2.6 IV Regression Results of Father's Schooling on Child's Schooling . 16 Table 2.7 Regression Results of Shock on Multigenerational Social Mobility . 16 Table 2.8 Regression Results of the Dad's Schooling on the Paternal Grandparents' Schooling . 17 Table 2.9 Regression Results of the Grandson's Schooling on the Dad's Schooling . 17 Table 2.10 Regression Results of the Grandson's Schooling on the Paternal Grandpar- ents' Schooling . 17 Table 4.1 The Position of This Paper in Literature . 43 vi LIST OF FIGURES Page Figure 2.1 Education Comparison of A and B Families . .9 Figure 3.1 Warm Glow and Pure Altruism in Modeling Parental Love . 21 @nwg Figure 3.2 The Illustration of @γ > 0........................... 27 @nwg Figure 3.3 The Illustration of @ < 0........................... 28 Figure 3.4 The Dynamics of Bequests in GZ Model . 36 Figure 4.1 The Order of Decisions . 44 vii ACKNOWLEDGMENTS One afternoon in the summer of 2008, I came across a friend on campus when I was walking home after completing the last class of my high school, carrying several textbooks and study guides. The friend was in the same grade, so we walked together and talked about the imminent college life. My friend asked, \What's your plan for your college life?" \I'm determined to think deeply on some issues." I replied calmly. \You are always thinking too much!" My friend responded sarcastically as if I were a nerd. I was serious. Reading fired my enthusiasm for the world: The Records about Insects aroused my curiosity about nature; Sophie's World provoked my interest in philosophy; Magic Math enabled me to appreciate the elegance of conic sections; Mencius brought me into ancient China. I was eager to know how the world works. During the next seven years obtaining my Bachelor's Degree in Economics and Master's Degree Finance, I spent a considerable amount of time auditing courses in philosophy, history, literature and arts. However, after auditing numerous courses and reading hundreds of books, I was still confused. What's worse, my ambition shrank from understanding the world to exploring the laws of human society. I decided to move on. So, I came to the United States to pursue my Doctoral Degree in eco- nomics. Obviously, my ambition shrank again from understanding human society to investigating how the economy works. During the process of taking courses, doing homework, preparing for qualifying exams and reading papers, it became evident that it is impossible to demystify the black box economy with a Doctoral Degree in Economics. Consequently, my ambition shrank from comprehending the economy to writing three essays on family economics. It is discouraging to see how a huge ambition dwindled to a small goal in my twelve years of higher education. But that's how we humans make progress in the pilgrimage to understanding the viii world. At the beginning, we have a whole but blurred map of the world. We are attracted by its beauty and amazed by its grace. Then, we delve into a small part of the map we find interesting and discover more details with the magnifier we have been honing for years. Drawing a completely clear map of the world is an impossible task for one person; nevertheless, it is the most sacred duty for humans as a race. I am greatly indebted to many people, who gave me unconditional support and invaluable advice in my journey to the small goal. First and foremost, I would like to express my deep gratitude to my major professor Elizabeth (Betsy) Hoffman. I enjoy talking with Betsy not because she is my major professor, but because she can grasp my untypical, and sometimes whimsical ideas due to her extraordinarily broad knowledge. Our conversations range from family dissolution to ancestor worship, from the U-shaped relationship between income and fertility to the time gap between giving nicknames and formal names for Chinese children in ancient times. Betsy holds two Doctoral Degrees, one in economics and the other in history. Disciplines cannot constrain her talents. During her splendid academic life, she served as Professor of Economics, History, Political Science, Psychology and Law in different universities. Betsy is the person of my acquaintance with the clearest map of the world. She is a shining example of what a scholar should be. I would also like to thank my reference letter writers Minghao Li and Tao Xiong. Minghao is also my coauthor who teaches me how to do empirical research with great patience. Tao helped me a lot in the job market. Meanwhile, I enjoyed playing squash and tasting delicious cuisine with the two young scholars. I would additionally like to thank my committee members for offering insightful comments. They are Joshua L. Rosenbloom, Sunanda Roy, John V. Winters, and Wendong Zhang. I also thank Ot´avioBartalotti and Xiying Liu for the help in my job market. I'm grateful to Joydeep Bhattacharya and Juan Carlos Cordoba for the help at the early stage. At last but not least, I want to thank my parents for their unconditional love and support. ix ABSTRACT This dissertation explores several issues on family economics. Chapter 2 uses a large and nation- ally representative sample to investigate the effects on children's education from their grandparents and extended families including uncles and aunts. Chapter 3 compares warm glow and pure altru- ism when they are both used to model parental love. The comparison focuses on their implications for fertility decisions and educational investments in the children. Chapter 4 studies the fertil- ity and education investment choices of parents when they hold both pure altruism towards their children and hyperbolic discounting preferences of their own. 1 CHAPTER 1. INTRODUCTION This dissertation focuses on family economics. More specifically, I have explored how grand- parents and the extended families influence the grandchildren's education, and how parents with different preferences make decisions about fertility and educational investments in their children. The behaviors of members within a family are so interconnected that a family is a better repre- sentative unit of a society than an individual.
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