Motives for investment in human capital of children: evidence from Indonesian Family Life Survey Data∗

Two alternative models of parental investments in children’s human capital are considered and tested empirically using the Indonesian Family Life Survey (IFLS). The pure loan model and the reciprocity with two-sided altruism model yield different predictions about the effect of children’s education level and number of children on intergenerational transfers. Using these predictions, a specification test is carried out to differentiate these two models with the data. The evidence favors the second model of reciprocity with twosided altruism. Draft prepared for presentation at the International Economic Association conference on, ”Economics of Reciprocity, Gift-giving and Altruism”, December 18-20, EHESS-Marseille, Center de la Vielle Charité, France. The authors are grateful to Serge-Christophe Kolm and Philippe Michel for comments. A part of this research of Lien Tran was supported by the Post Doctoral Fellowship at Rand Corporation, and a part of this research of Lakshmi Raut was conducted while he was a Visiting Fellow at the Rand Corporation, summer 1997. The 1993 Indonesian Family Life Survey was a collaborative effort of Lembaga Demografi of the University of Indonesia and RAND.