My dissertation consists of three essays concerning investment in human capital. In my first essay, “Who Compensates and Who Reinforces? Parental Investment Responses to Child Endowment Shocks,” I examine whether parental investment in the human capital of low birth weight children differs by parental education and income. The results indicate that on average parents neither compensate nor reinforce a low birth weight outcome, but there are important investment differences by income and education. I find that investment in the cognitive development of children is slightly reinforcing in low-income families and slightly compensatory in high-income families. High-educated parents compensate for a low birth weight outcome by investing more in the noncognitive development of their low birth weight children, whereas low-educated parents reinforce by investing less in the noncognitive development of their low birth weight children. In contrast to the small cognitive investment differences by income, the noncognitive investment differences by education are large. These results provide an explanation for recent evidence indicating that low birth weight children in disadvantaged families fare worse relative to their normal birth weight siblings than do their counterparts in more advantaged families.
In my second essay, “Does Fetal Exposure to Tobacco Smoke Affect a Child’s Adult Outcomes?,” I examine whether fetal exposure to tobacco smoke affects long-run outcomes such as schooling attainment, employment, and labor market earnings. Well-documented evidence indicates that smoking during pregnancy is harmful to the health of newborns, but less is known about the long-lasting consequences for children who are prenatally exposed to tobacco smoke. Furthermore, even less is known about factors that mediate effects of fetal exposure to tobacco smoke on later-life outcomes. Guided by biomedical studies that have demonstrated a strong link between fetal exposure to tobacco smoke and brain development, I explore whether various aspects of cognitive ability, social and emotional development, behavioral development, and mental health explain effects of fetal tobacco smoke exposure on later-life outcomes. I find that fetal exposure to tobacco smoke has a large negative effect on schooling attainment, and that there is a dose-response relationship between fetal exposure to tobacco smoke and years of schooling. I find little support for the hypothesis that cognitive ability is important in mediating the effect of fetal tobacco smoke exposure on schooling attainment. However, I find that behavioral development and mental health are important in explaining why children who were prenatally exposed to tobacco smoke complete less schooling than their unexposed counterparts.
Even when there are worthwhile human capital investments to be made, market imperfections may preclude such investments. In my third essay, “A New Look at the Effect of Credit Constraints on College Attendance,” I examine whether credit constraints affect college attendance. I consider a household to be credit constrained if they have recently used payday or pawn shop services and cited difficulty qualifying for a traditional bank loan as the primary reason. Using regression and propensity score matching methods, I find that college-age youth in credit constrained households are substantially less likely to attend college than their counterparts in households that are not credit constrained. Using sensitivity analyses that complement the regression and propensity score analyses, I find that the estimated effect of credit constraints on college attendance is robust to a modest amount of unobserved heterogeneity.