This paper examines how the expectation of future co-residence with the oldest
son affects parental investments in schooling. In economies with weakly
developed financial markets, such as India, many households lack access to the
financial instruments that enable saving to smooth consumption over the life
cycle. Instead, co-residence with sons is the primary method of ensuring
consumption requirements in old age. Of parents who chose co-residence, the
majority reside with the oldest son.
How does this contract affect the schooling and hence the wealth of future
generations? The effect is generally perceived to be positive. Researchers have
argued that old-age support is just one side of a reciprocal exchange system,
whereby parents invest in the schooling of their children in anticipation of support
in old age (Lillard and Willis 1997). If imperfectly developed financial markets
also imply lack of access to the credit necessary to finance educational
investments, the inter-generational family unit can substitute for formal markets,
enabling implicit loans for schooling from parents to their young children, that,
when subsequently repaid, support the consumption requirements of elderly
parents. Others, however, note that collective or social institutions may enhance
poverty because default remains a significant concern, even in social contracts
(Greif 1997). This may be particularly true of implicit intra-family contracts
across generations; formal legal institutions are generally reluctant to intervene in
intra-familial conflicts. Reducing the probability of default requires actions to
enhance the value of the contract, and these may come at the cost of wealthenhancing
investments