GAMES PARENTS AND TEENS PLAY: RISKY BEHAVIORS, PARENTAL REPUTATION, AND STRATEGIC TRANSFERS

Lingxin Hao (Johns Hopkins University)
V. Joseph Hotz (University of California, Los Angeles and NBER)
Ginger Zhe Jin (University of Maryland)

In this paper, we examine the empirical implications of reputation formation using a game-theoretic model of intra-familial interactions. We consider parental reputation in repeated two-stage games in which the decisions of adolescents about risk-taking behavior and the willingness of parents to provide transfers to their offspring as a function of their risky behavior are modeled. Following models of reputation in repeated games, we show that parents have, under certain conditions, the incentive to penalize the risky behavior of their older offspring in order to establish a reputation for being tough in order to deter risk-taking behavior of their younger offspring. This insight leads to two testable predictions: parents are more likely to punish a teen's risky behavior, the greater the number of younger offspring in the family and, all else equal, older teens in a family are less likely to engage in risk-taking behaviors, the greater the number of younger siblings. We test these predictions using data from the National Longitudinal Survey of Youth, 1979 Cohort (NLSY79) for two commonly-perceived risky behaviors: daughters having births as teenagers and teens dropping out of high school. In our econometric analysis, we exploit the availability of repeated observations on parental responses to these behaviors by young adults in the data and the availability of multiple offspring from a given family to control for child- and family-specific fixed effects. In our analysis of these two behaviors and how parents respond to them, we find evidence of differential parental financial transfer responses to teenage childbearing by the number of the younger siblings in a household who are at risk to engage in these risky behaviors.