Is it a good idea to buy a car for your son or daughter?

This paper develops a theory about how signals sent to a child by an altruistic parent affect the child’s self-esteem, effort and long-term performance when the parent has better information about child ability than the child does. We carry out OLS, 2SLS and 3SLS estimations of our model on a sample of 651 college students. Our results show that some complementary actions before college, such as parental praise, foster academic achievement above what natural ability would predict. Conversely, we find that some substitutionary actions before college, e.g. providing cars as gifts, are associated with lower effort in college and underachievement.

Source: “The Economics of Parenting, Self-esteem and Academic Performance: Theory and a Test” from Economica

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