BEQUEST RECEIPT AND FAMILY SIZE EFFECTS

I. INTRODUCTION The seminal economic models of intergenerational human capital investment demonstrate the potential importance of credit market failure in determining child achievement (Becker and Barro 1988; Becker and Lewis 1973; Becker and Tomes 1986; Willis 1973). (1) Without the ability to borrow against future child earnings, additional children raise the cost of providing a given level of child quality; alternatively, the greater the level of child quality the higher the cost of having an additional child. (2) The resulting negative relationship between family size and child outcomes is termed a "quality-quantity trade-off." Early empirical studies found large negative family size effects, consistent with significant credit market failure. (Kessler 1991 includes a brief survey of this literature.) However, Kessler points out that this early literature often ignored the possible effects of birth order. Because birth order is inherently correlated with family size, this omitted variable might account for observed family size effects if first- or early-born children are advantaged due to preferential parental investments or innate advantages. (See Behrman and Taubman 1986 for a discussion of biological, psychological, and economic reasons for such birth order effects.) Studies that include both family size and birth order controls report conflicting results. (3) Using data from the National Longitudinal Survey of Youth, Kessler (1991) finds that neither birth order nor family size affect the level or growth rate of wages. He does find a family size effect in the hours worked by women, though the direction of the effect depends on age. Using a sample from Norway, Black, Devereux, and Salvanes (2005) find significant family size effects with ordinary least squares even with birth order controls. However, when family size is instrumented with twinning the effect becomes statistically indistinguishable from zero (though the standard errors are large and the results are also consistent with very large family size effects). In Britain, Grawe (2008) finds sizable family size effects even after controlling for birth order. Of course, the presence or absence of family size effects in the population as a whole is weak evidence for or against the importance of credit constraints. Both reason and theory suggest that some families will be free from such hurdles. Two existing studies have compared family size effects between groups that are more and less likely to be constrained. The Norwegian study of Black, Devereux, and Salvanes (2005) divides the sample according to mother's education ([greater than or equal to] 12 or >12 yr). Their estimates (based on instrumental variables using twinning as the instrument) do not clearly show greater family size effects among the presumably more constraint-prone, low mother's education group. However, the coefficients are imprecisely estimated and so the test has low power. Grawe (2008) examines the family size effect in Britain, dividing the sample by father's earnings. Those with fathers in the top 20% of the income distribution are presumably financially unconstrained, yet strong family size effects are found in educational performance among children in these families. These articles suggest that financial constraints do not explain family size effects in Norway and Britain. But the experiences in these countries may say little about access to credit markets in the United States. In particular, both Norway and Britain provide free access to higher education. (Within the past few years, British universities have been allowed to charge as much as 3,000 [pounds sterling] for tuition. But the individuals studied by Grawe, born in 1958, completed their educations long ago.) The present article explores the relevance of credit to family size effects in the United States, dividing families based on bequest receipt of the children. Theory suggests that only those unconstrained by credit access would receive a financial bequest. …