Family investment responses to childhood health conditions: Intrafamily allocation of resources

The onset of a health condition during childhood impairs skill formation. A number of studies have investigated the long-lasting effects of poor health during childhood on later-in-life outcomes. However, this evidence ignores how parents respond to the onset of health conditions. Do their investments reinforce the health condition? Or compensate, or behave neutrally? If parents change their investments, the relationship between early health and later outcomes combines the biological effect and the investment responses. To address this question, I use within-sibling variation in the incidence of health conditions to control for selection from unobserved household heterogeneity. Parents invest, on average, 0.16 standard deviations less in children with mental conditions relative to their healthy siblings, using a measure of investment that includes time and resources. On the contrary, when children have a physical condition, parental investments do not differ across siblings. Results are robust to alternative measures of health conditions and the inclusion of child fixed effects.