Friday, March 21, 2008

Risky teenage behaviour

It is not everyday that an actual academic article appears about economics and parenting but the April 2008 issue of the Economic Journal contains a piece entitled: "Games Parents and Adolescents Play: Risky Behaviour, Parental Reputation and Strategic Transfers" by Lingxin Hao, V. Joseph Hotz and Ginger Z. Jin. The paper tries to understand risky teenage behaviour (you know getting pregnant, taking drugs, etc) and how it is related to parenting -- specifically, a parent's ability and willingness to use money later on to reward or punish such behaviour. It is both theoretical and empirical.

Let's begin with the theory. Gary Becker was the first economist to consider this issue. He looked at the interaction between a Rotten Kid and an altruistic parent. Rotten kids think about doing things that are destructive, not only to themselves, but perhaps to family members. The altruistic parent wants to deter such behaviour and so wants to punish kids who misbehave and reward those who don't. The problem is that after the fact a parent loves all their children equally and so may not be able to commit to the requisite punishments. Becker's analysis demonstrated that such commitment would be possible if parents could simply transfer the joy around with money. In that situation, a parent would observe that one kid misbehaved and benefited while another behaved well but sacrificed. To equalise the score, the parent would naturally give the 'good' child more. Indeed, once the Rotten Kid realised that this would occur, that kid fully internalised the impact of their behaviour on the rest of the family and harmony would reign.

Now, while this is a deep result, it is dependent upon being able to trade-off love and money easily. That is hard to do in which case, the parent faces a commitment issue and may well end up not punishing bad behaviour and, not surprisingly, such behaviour may occur. Let's face it, if you want to explain teenage risk-taking, that has to be the theoretical starting point.

What Hao do is notice that if a parent has a few children and faces this commitment issue, they may be willing to go hard on the older siblings to send a message to the younger ones. But it is trickier than that as the younger ones would understand they were just doing this and so that would be ineffective. To resolve this you have to believe that children are uncertain about how caring their parents are and that is what Hao do. If you are willing to go with all that you have predictions that older siblings will get less money from their parents than younger ones.

So what do they find when they look at the data?
Consistent with the reputation model, we find that daughters who had teen births or children who drop out of high school receive fewer parental transfers after reaching adulthood when the parent has a larger number of younger children in the family. Moreover, focusing on the offspring within the same family, we find that older siblings are less likely than younger ones to drop out of high school or to have births as teens. These findings are consistent with the reputation model’s implications that parents may have an incentive to engage in strategic responses to the risk-taking behaviour of their children according to birth order and that older children understand these incentives and are more likely to respond by refraining from committing risky behaviours compared to their younger siblings.
Of course, it may just be that larger families have less money to give to children anyhow and as income grows, the younger ones just get more. But it turns out that families with lots of money seem to behave in the same way as ones with low wealth.

It may also be that parents are just learning more about parenting. It is hard to distinguish this notion from one where parents are developing a reputation. However, if more learning is concentrated on the first born then there should be something more special about them than about the 2nd to nth child. The paper finds nothing special there.

This is a provocative and careful paper. Moreover, it is precisely the sort of work that makes non-economists think economists are crazy. I enjoyed it.