Monday, January 31, 2011

Do parental cash transfers weaken performance in college?

Do parental cash transfers weaken performance in college?

Örn B. Bodvarsson and Rosemary L. Walker


When parents support children in college, does this undermine the incentive to do well? The authors test the hypothesis that parental cash transfers induce college students to commit moral hazard in their studies on a sample of nearly 1300 undergraduates at two Midwestern universities. After controlling for a wide variety of factors influencing college performance, it was found that those students receiving at least partial coverage from their parents for tuition and books: (1) failed their courses more often than self-financed students; (2) were at higher risk of being placed on academic probation; and (3) earned lower GPAs.

1 comment:

PLW said...

I don't care how many covariates they controlled for. This has got to be selection. Someone who is not serious about their studies is very unlikely to pay their own way. It works on the margin too (moderately serious are less likely to go if they have to fully pay their own way, but will go if they get subsidized). Of course, this tells us nothing about how successful the serious students would have been if they had parental funding, or had unsuccessful the non-serious students would have been if they also had to work, i.e., the true causal effect of parental funding.

And don't even get me started on their IV strategy. Just try to restate the exclusion restriction in words.. it comes out as basically,

" ACT score, completed credits, number of D and F grades earned and whether the student has been on academic probation are only related to Current GPA through their effect on parental financial support. "

The plausibility of that claim speaks for itself.