Changing Families: Family Relationships, Parental Decisions, and Child Development

We develop a tractable economic framework to study the impact of family structure on children’s cognitive and noncognitive outcomes. Combining a sequential choice model with panel data on both biological parents, irrespective of subsequent relationship status, and on social fathers and a set of exclusion restrictions, we identify the unobserved heterogeneity of biological families and examine child skill formation via a control function approach. Time investments made by high-ability fathers have positive returns, whereas those made by low-ability fathers can generate negative returns. Policies that incentivize family formation should consider the quality of the fathers whom mothers are cohabited with.