are required to actively alter parental choices. In fact, recent research suggests that, like markets and schools, the pragmatic framework has much to offer for household-based policies as well.

This research points to three areas for policy consideration. There is a long tradition in economics, pioneered by Foster and Rosenzweig (1996) showing that the demand for education responds to labor market returns.<sup>36</sup> But, market inefficiencies can arise here are well. First, parents may be ill-informed about the _returns_ to education. If, for instance, parents base estimates on children who remain in the village instead of migrating, they will selectively underestimate the returns to education and this will in turn depress their incentive to send children to school. If so, providing better estimates of the return to education should increase schooling—and this is precisely what Jensen (2010) finds in an experiment in the Dominican Republic.

Second, parental investments in children may _reinforce_ or _compensate_ for existing capabilities. In the United States, for instance, schools and parents often spend more time and money on children who have learning difficulties, but in countries like Pakistan, household behavior may be very different. For instance, we find in our data that children who are perceived as “more intelligent” by parents are more likely to go to school, have more money spent on them, and have higher test-scores. This could be because of reinforcing beliefs, but recent work from the U.S. also shows that exogenous increases in the capabilities of children during their early childhood lead to similar reinforcing behavior among poor households (Aizer and Cunha 2012).

Whether or not this is a problem for efficiency and equity requires further research. The issue is one of returns and inter-sibling transfers in adulthood. Specifically, imagine that only those children who pass 10<sup>th</sup> grade can earn high salaries, perhaps due to eligibility requirements for government jobs. It may be optimal for parents to invest in children who are more likely to pass 10<sup>th</sup> grade under the premise that they will compensate with greater transfers in adulthood, in essence, maximizing the size of the pot and then sharing the gains. A study of twins in China looks at transfers from parents to twins, one of whom was sent to rural areas during the Cultural Revolution and thus suffered significant deficits, while the other was not. Although parents selected children with lower endowments to be sent down, in adulthood, the twin who was sent down also received greater transfers (Li, Rosenzweig and Zhang 2010).

Third, parents may be ill-informed about the abilities of their children. This issue is at the frontier of our current understanding but there is some evidence. For instance, in Malawi, new information on child ability leads parents to reallocate expenditures to align more closely with their children’s achievements and the misalignment of parental beliefs and child achievements are higher among the poor (Dizon-Ross 2014). In Pakistan, we consistently find that educated mothers allocate more time for their children and ensure that their children spend more time on schoolwork when at home (Andrabi, Das and Khwaja 2012). In addition, informing parents about the high rates of success of girls in higher education increases their educational aspirations for girls, especially for those they think of as `high quality’.

> 36 For some recent examples, see Bryce and Oster (2013) or Heath and Mobarak (2014).

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