Offspring’s Uncertainty and Dynastic Decisions: Evidence from Urban China

We investigate the impact of offspring’s income uncertainty associated with college enrollment on intergenerational decisions. We exploit the experiment of the national college entrance examination (NCEE) reform in China, which increases the uncertainty of households containing students of compulsory education age. Based on comprehensive survey data, we find that 1) offspring’s uncertainty arising from the NCEE reform significantly decreases household total consumption and shifts consumption structures toward intergenerational inputs and housing purchases; 2) additional housing demand can be attributed to a dynastic precautionary motivation, which has heterogeneous effects based on a status quo bias toward exposure to and perception of the reform; 3) the inclusion of illiquid housing assets tilts the portfolio of households toward safe and liquid financial assets, and this allocation adjustment makes households financially worse off.