Sibling Dependence, Uncertainty and Education: Findings from Tanzania

Primary school enrolment rates are continuously low in many developing countries. The main explanation in the economic literature on schooling is focused on credit constraints and child labour, implying that the indirect cost of schooling in terms of foregone earnings is too high. This paper investigates the effects of future income uncertainty on sibling dependence in the schooling decisions of rural households in developing countries. Schooling tends to direct skills towards future urban employment, whereas traditional rural education or on-farm learning-by-doing tends to direct skills towards future agricultural employment. Given this dichtomy, the question is then: Does future income uncertainty influence the joint educational choice made by parents on behalf of their children and is it possible to test this on simple cross-sectional data? I extend a simple human capital portfolio model to a three period setting. This allows me to explore the natural sequentiality in the schooling decision of older and younger siblings. The model can generate testable empirical implications, which can be taken to any standard cross-sectional data set. I find empirical evidence of negative sibling dependence in the educational decision, which is consistent with a human capital portfolio theory of risk diversification and which cannot be explained by sibling rivalry over scarce resources for credit constrained households. The paper thus provides a complementary explanation to why enrolment rates in developing countries are often continuously low.schooling; human capital investment; specific human capital; sibling dependency; old-age security; uncertainty; risk and income source diversification; liquidity constraints; Tanzania; Africa

Human Capital Diversification within the Household: Findings from Rural Tanzania

Lack of primary schooling among rural children in developing countries is often attributed to credit constraints and household demand for child labour, implying that direct and indirect costs of schooling are high. Surprisingly few studies have considered the importance of parents' expected returns of investing in their childrens human capital, despite the fact that most parents rely on their children for old-age support and subsistence. In this paper, I propose an alternative model for human capital investment based on the household, rather than the individual child, incorporating the fact that parents bear the costs of educating all their children and face uncertainty about the level and share of future returns. This uncertainty can make it optimal for parents to ensure a certain degree of human capital diversification within the household. The model implications allow me to test whether it is the need for diversification or the costs of schooling that dominate the human capital investment decision in rural households. Using extraordinary long panel data from a rural region in Northwestern Tanzania, I find strong empirical evidence of diversification effects for rural sons, but not for rural daughters. Exactly in line with what should be expected for a patrilineal society. This can potentially have far reaching policy implications.intergenerational contract; social compact; schooling; human capital; traditions; ethnicity; ethnic diversity; social capital; Tanzania; Africa

Voluntary Public Unemployment Insurance

Voluntary public unemployment systems are limited to a handful of countries, including Finland, Sweden, and, more substantially, Denmark. A voluntary system has the positive feature of other user-cost schemes, potentially efficient targeting of services. This presumes rational behavior as well as reasonable risk rating of premiums and the absence of worker access to alternative social programs. Using a 10 per cent sample of the Danish population drawn from administrative data, we exploit the voluntary Danish system to explore the structure of unemployment insurance demand. The insurance take-up rate is surprisingly high, 80 percent in 1995, but varies systematically with economic incentives in a way that raises doubts about the targeting value of the current system. Political support for the Danish system may derive instead from the fact that a universal, compulsory system would generate rather modest additional net funds and with a twist--additional revenue would come disproportionately from low-wage workers.

Voluntary Public Unemployment Insurance

Voluntary public unemployment systems are limited to a handful of countries, including Finland, Sweden, and, more substantially, Denmark. A voluntary system has the positive feature of other user-cost schemes, potentially efficient targeting of services. This presumes rational behavior as well as reasonable risk rating of premiums and the absence of worker access to alternative social programs. Using a 10% sample of the Danish population drawn from administrative data, we exploit the voluntary Danish system to explore the structure of unemployment insurance demand. The insurance take-up rate is surprisingly high, 80 percent in 1995, but varies systematically with economic incentives in a way that raises doubts about the targeting value of the current system. Political support for the Danish system may derive instead from the fact that a universal, compulsory system would generate rather modest additional net funds and with a twist--additional revenue would come disproportionately from low-wage workers.