Compensation vs. Reinforcement: Experimental Identification of Parental Aversion to Inequality in Offspring

Parents may invest differently across children by compensating the disadvantaged child or by reinforcing the child with higher expected returns. We study this question using a conditional cash transfer experiment that uniquely randomized transfers at the student level, generating exogenous variation in transfer exposure across siblings within the same household. The transfers increased short-run attendance among treated students but generated negative spillovers on untreated siblings: untreated siblings of treated students were 3.7 percentage points less likely to graduate from college, a decline of about 30 percent relative to the control mean. We interpret these effects using a dynamic model of household schooling decisions that identifies parental aversion to inequality in children’s educational outcomes. The estimated model implies limited aversion to inequality in children’s educational outcomes and reproduces held-out treatment effects not used in estimation. A decomposition shows that the negative spillover is primarily driven by substitution in educational investments toward the treated child.