Explaining Differences in Education between Foster Children and Biological Children: a Sibling Rivalry Approach. Some Evidence from Indonesia

This paper aims at explaining differences in education between foster-children and the biological children of their new household by differences in return to education as suggested by the human capital investment model. Defining this return by the amount of the old-age support the care-givers expect to receive, we assume that foster-children have a lower return to education than biological children, as the former might provide old-age support for both their host and biological parents while the latter to their biological parents only. Given this assumption and if the credit constraints are binding, the model suggests that foster-children will receive less human capital investment if there are in presence of host children than if they are not.In contrast, if parents have aversion against inequality, the prediction reverses: foster-children will receive more human capital investment if there are in presence of host children than if they are not.Using data from Indonesia, we provide some evidence in favor of the credit constraints hypothesis.This suggests that financial support to families who care for both biological and foster-children will enhance the latter education as it would reduce the credit constraints and thus, the induced sibling rivalry.