How far the apple fall from the tree

Question 1
(i) What is persistence and how does it affect labor market outcomes?
Persistence in the context of intergenerational educational transmission refers to the degree to
which educational attainment tends to be passed down from one generation to the next. It is
typically measured as the correlation or regression coefficient between the education levels of
parents and their children. Higher persistence indicates a stronger association between the
educational levels of parents and their children.
The effect of persistence on labor market outcomes is complex and multifaceted. Generally,
higher intergenerational persistence in education can contribute to the perpetuation of
socioeconomic inequalities. If educational opportunities are not equally distributed, individuals
from families with higher educational attainment are more likely to have better access to
resources, networks, and opportunities, which can positively impact their labor market outcomes.
Conversely, lower persistence suggests a weaker link between parental education and the
educational attainment of the next generation, which may contribute to greater social mobility
and a more equitable distribution of opportunities.
(ii) Differences in Measures of Persistence in the Table:
1. Correlation and Regression:
- When we look at all fathers and sons, the connection in education levels is moderate
(Correlation: 0.49). But if we only focus on those who live together, the connection is a bit
stronger (Correlation: 0.53).
- In terms of the impact of a father's education on his son's education, the overall influence is
strong (Regression: 0.52). Yet, when we narrow down to fathers and sons living together, the
impact is slightly less strong (Regression: 0.47).
2. Other Stats:
- The model that considers only those living together explains a bit more of why sons have
certain education levels (R2: 0.262) compared to the model with all pairs (R2: 0.222).
- We had a lot more pairs in the overall analysis (41,275) compared to the specific group of
fathers and sons living together (14,518).
- Sons' education levels vary less when considering only those living together (Standard
Deviation: 3.647) compared to all pairs (Standard Deviation: 4.007)
- The variability in fathers' education is higher in the group living together (Standard
Deviation: 4.125) than in the overall analysis (Standard Deviation: 3.767).
 - The ratio of how much sons' education varies compared to fathers' education is smaller in the
group living together (Ratio: 0.884) than in the overall analysis (Ratio: 1.063).
3. Equality Tests:
We did tests and found that the differences between the two groups (all pairs vs. those living
together) are significant, both in terms of correlation and regression.
In Simple Terms
- If we only look at fathers and sons living together, their education levels seem more connected.
- The impact of a father's education on his son's education is a bit less strong when considering
additional factors and all pairs.
- The model is slightly better at explaining why sons have certain education levels when we
focus on those living together.
- There are more pairs in the overall analysis, and there's more variability in education levels
among all pairs compared to those living together.
- Tests confirm that these differences are not just random; they are significant.
(iii) Why do authors rely on decomposition exercise instead of stressing more on
causation?
Authors may choose to rely on decomposition exercises instead of emphasizing causation for
several reasons:
Complexity of Causation: Establishing causation in social science, especially in
intergenerational studies, can be challenging due to the presence of numerous confounding
variables and the dynamic nature of social systems.
Data Limitations: Causation often requires experimental designs or rigorous statistical methods
that may be challenging to implement with available data. Decomposition methods allow
researchers to analyze and interpret observed associations without making strong causal claims.
Policy Relevance: Decomposition analysis helps identify specific components contributing to
observed patterns, offering insights that can be more directly relevant to policymakers seeking to
address inequalities.
(iv) Pros and Cons of Relying on Coresident Sample in Evaluating Education Policy:
Pros:
Data Availability: Coresident samples are often more readily available and easier to collect,
providing a larger pool of data for analysis.
Cost-Effectiveness: Collecting data on coresident samples can be more cost-effective than
attempting to include non-coresident samples.
Cons:
Selection Bias: Coresident samples may introduce selection bias, as they only include
individuals who live together. This could lead to a skewed representation of certain
demographics or socioeconomic groups.
Limited Generalizability: Findings based on coresident samples may not be generalizable to the
broader population, as they exclude individuals who do not live with their parents.
(v) Caution with Coefficient of Correlation vs. Regression Coefficient:
The caution with the coefficient of correlation, as mentioned in the paper, could stem from the
fact that correlation measures the strength and direction of a linear relationship between two
variables but does not imply causation. Correlation alone cannot explain the underlying reasons
for observed patterns.
On the other hand, regression coefficients in the context of intergenerational education studies
may be considered with less caution because regression analysis allows for controlling or
adjusting for additional variables. This can provide a more nuanced understanding of the
relationship between parental education and children's outcomes, helping to account for potential
confounding factors.
In summary, caution is emphasized with correlation because it may not capture the full
complexity of the relationships involved, whereas regression coefficients, when appropriately
used, can provide a more controlled analysis of the impact of parental education on labor market
outcomes.

Economic Consequences

Question 2
Parametric and Non-parametric Specifications
The diagram you provided shows the impact of hospitalization on out-of-pocket medical
expenditures for the non-elderly insured (ages 50-59) in the United States, Western Europe,
Southern Europe, and China. The authors used both parametric and non-parametric
specifications to estimate the impact of hospitalization.
Parametric Specifications
Parametric specifications assume a specific functional form for the relationship between the
dependent variable (out-of-pocket medical expenditures) and the independent variable
(hospitalization). In this case, the authors used a difference-in-differences (DID) model to
estimate the impact of hospitalization. The DID model compares the change in out-of-pocket
medical expenditures for hospitalized individuals to the change in out-of-pocket medical
expenditures for non-hospitalized individuals. The authors controlled for a number of factors in
the model, including wave-cohort-country fixed effects and person weights.
Non-parametric Specifications
Non-parametric specifications do not assume a specific functional form for the relationship
between the dependent variable and the independent variable. In this case, the authors used a
regression discontinuity design (RDD) to estimate the impact of hospitalization. The RDD
design takes advantage of a sharp discontinuity in the probability of hospitalization at a certain
threshold, such as a specific age or income level. The authors compared the outcomes of
individuals who were just above and just below the threshold to estimate the impact of
hospitalization.
Findings from the Diagram
The diagram shows that hospitalization has a significant and positive impact on out-of-pocket
medical expenditures in all four countries. The impact is largest in the United States, followed by
Western Europe, Southern Europe, and China. The results from both the parametric and non-
parametric specifications are consistent with each other.
Regions that Require Public Policy Intervention
The diagram suggests that the United States is the region that requires the most public policy
intervention to reduce the financial burden of out-of-pocket medical expenditures associated with
hospitalization. This is because the impact of hospitalization on out-of-pocket medical
expenditures is largest in the United States.
One Example of Public Policy Intervention
One example of a public policy intervention that could reduce the financial burden of out-of-
pocket medical expenditures associated with hospitalization is to expand Medicaid coverage.
Medicaid is a government health insurance program for low-income individuals and families.
Expanding Medicaid coverage would provide more people with access to affordable health
insurance, which would reduce their out-of-pocket medical expenditures.
How Event Study Design Helps Evaluate the Impact of a Shock
An event study design is a research method that can be used to evaluate the impact of a shock,
such as a policy change or a natural disaster. The event study design compares the outcomes of
individuals or groups who were affected by the shock to the outcomes of individuals or groups
who were not affected by the shock. The event study design can be used to estimate both the
immediate and long-term effects of the shock.
To use an event study design to evaluate the impact of hospitalization, researchers would
compare the out-of-pocket medical expenditures of hospitalized individuals to the out-of-pocket
medical expenditures of non-hospitalized individuals. The researchers would also need to control
for other factors that could affect out-of-pocket medical expenditures, such as age, income, and
health status.
The event study design can be a useful tool for evaluating the impact of hospitalization because it
allows researchers to control for other factors that could affect out-of-pocket medical
expenditures. The event study design can also be used to estimate both the immediate and long-
term effects of hospitalization.

Question 3

(i) Explanation of the findings from the diagram in the context of parametric and non-
parametric specifications

The diagram shows the impact of hospitalization on out-of-pocket medical expenditures for older
workers (ages 50-64) in the United States and six European countries: Belgium, Denmark,
Finland, France, Germany, and the Netherlands. The authors used both parametric and non-
parametric specifications to estimate the impact of hospitalization.

Parametric Specifications

The parametric specification used by the authors was a difference-in-differences (DID) model.
The DID model compares the change in out-of-pocket medical expenditures for hospitalized
individuals to the change in out-of-pocket medical expenditures for non-hospitalized individuals.
The authors controlled for a number of factors in the model, including country fixed effects,
wave fixed effects, individual characteristics, and year fixed effects.

Non-parametric Specifications

The non-parametric specification used by the authors was a regression discontinuity design
(RDD) model. The RDD model takes advantage of a sharp discontinuity in the probability of
hospitalization at a certain threshold, such as a specific age or income level. The authors
compared the outcomes of individuals who were just above and just below the threshold to
estimate the impact of hospitalization.

Findings from the Diagram

The diagram shows that hospitalization has a significant and positive impact on out-of-pocket
medical expenditures in both the United States and the six European countries. However, the
impact is larger in the United States than in Europe.

(ii) Potential reasons for differences in the results

There are a number of potential reasons for the differences in the impact of hospitalization on
out-of-pocket medical expenditures between the United States and Europe. One reason is that the
United States has a more decentralized healthcare system than Europe. This means that there is
more variation in the cost of healthcare across different regions and providers in the United
States. Another reason is that the United States has a higher deductible and copayment burden
than Europe. This means that Americans pay more out-of-pocket for healthcare services, even
when they have health insurance.

(iii) Part of the specification from which the author computed the implied effects
The author calculates implied effects by examining changes in social insurance payments,
spousal earnings, and total household income post-hospitalization. Notable increases in social
insurance payments are observed for U.S. and Western European households. In the U.S., this
amounts to $1,537 (2.6% of pre-admission income), while in Western Europe, it is $5,356
(14.6% of pre-admission income), both measured 24 months post-hospitalization. While
immediate spousal earnings increases are not evident, there's a suggestion of a rise beyond 24
months post-admission for the U.S. and China, possibly indicating prolonged employment due to
a spouse's health shock. The study acknowledges uncertainties in estimates and notes potential
non-pecuniary forms of informal insurance, such as caregiving. The implication is that these
informal insurance mechanisms may take a few years to surface but are crucial for the long-term
well-being of individuals facing health shocks toward the end of their working lives. The
findings are derived from econometric analyses.

(iv) Author's motivation to evaluate the impact of health shocks

The authors' motivation to evaluate the impact of health shocks is to understand the financial
burden of these shocks on individuals and families. Health shocks can have a significant impact
on household finances, especially for low-income households and households with limited health
insurance coverage. By understanding the impact of health shocks, policymakers can design
policies to help mitigate the financial burden of these shocks on individuals and families.

(v) Usefulness of event study design in addressing the issue

The event study design is a useful tool for addressing the issue of the impact of health shocks
because it allows researchers to control for other factors that could affect out-of-pocket medical
expenditures. For example, the event study design can be used to control for changes in the
overall economy, such as changes in the unemployment rate or the inflation rate. The event study
design can also be used to control for changes in individual characteristics, such as age, income,
and health status.In addition, the event study design can be used to estimate both the immediate
and long-term effects of health shocks. This is important because the financial burden of health
shocks can persist for many years after the shock occurs.

Conclusion

The event study design is a powerful tool for evaluating the impact of health shocks on out-of-
pocket medical expenditures. The authors of the paper used the event study design to show that
hospitalization has a significant and positive impact on out-of-pocket medical expenditures in
both the United States and Europe. However, the impact is larger in the United States than in
Europe. The authors' findings suggest that policymakers in the United States should consider
policies to help mitigate the financial burden of hospitalization on individuals and families.

Watta Satta

Question no 4

i) Incomplete Marital Contracts:

 The author argues that the terms of the marital contract in Pakistan can never be fully
specified ex-ante (before marriage) or ex-post (after marriage) due to various factors.
These factors include the dynamic nature of relationships, the complexity of human
interactions, and the impossibility of foreseeing all future circumstances and events.
Marriage involves ongoing negotiations and adjustments, making it challenging to have a
fully specified and enforceable contract.
2) Upside and downside of Reciprocity and Concordance in the shadow of mutual threat
Reciprocity refers to the idea that the two families involved in a watta satta arrangement will
treat each other's daughters equally. This can be seen as an upside of the arrangement, as it can
help to reduce conflict and promote harmony between the two families.
Concordance refers to the idea that the two families involved in a watta satta arrangement will
work together to resolve any problems that may arise in the marriage. This can also be seen as an
upside of the arrangement, as it can help to ensure the stability of the marriage.
However, the author also argues that the reciprocity and concordance in watta satta arrangements
are often maintained in the shadow of mutual threat. This means that each family knows that if
they mistreat their daughter-in-law, the other family will retaliate by mistreating their own
daughter-in-law. This threat of retaliation can help to ensure that the two families treat each
other's daughters fairly.
However, the threat of retaliation can also have a downside. It can create a climate of fear and
mistrust between the two families. It can also make it difficult for the two families to resolve
problems in a constructive way.
(iii) Role of endogamy and hypergamy when thinking about the Watta Satta arrangement
Endogamy is the practice of marrying within one's own social group. Hypergamy is the practice
of marrying someone of a higher social status. The author argues that endogamy and hypergamy
are both important factors to consider when thinking about the watta satta arrangement.
Endogamy is important because it helps to maintain social order and cohesion. It also helps to
ensure that property and wealth are passed down within the same social group.Hypergamy is
important because it allows women to improve their social status through marriage. It also allows
families to form alliances with other families of higher social status.
The watta satta arrangement can be seen as a way to combine the benefits of endogamy and
hypergamy. By exchanging daughters, two families can maintain their social status, while also
allowing their daughters to marry into families of equal or higher social status.

4) Construction of Marital Discord:

The author constructs measures of marital discord to assess the impact of watta satta on marital
outcomes. These measures include:
Estrangement: The temporary return of the wife to her natal home.
Domestic Violence: Physical and emotional abuse by the husband.
Wife's Mental Depression: The presence of major depressive episodes.

5) Key Findings from Table 3 - Marital Discord Model Estimates:

The table presents estimates from different models examining the relationship between watta
satta (WS) and various factors associated with marital discord. Each model includes different
sets of variables, including the number of older brothers and sisters, total number of brothers and
sisters, father's education level, father's landholdings, and correlations between different error
terms. The coefficients and standard errors for each variable indicate the estimated impact on
marital discord outcomes. For example: Watta satta (WS) has a negative coefficient in all
models, suggesting that being in a watta satta marriage is associated with lower probabilities of
marital discord. The number of older brothers and sisters, father's education, and landholdings
also show significant associations with marital discord outcomes. Log likelihood values indicate
the goodness of fit for each model.
Overall, the findings support the hypothesis that watta satta marriages are less likely to
experience inefficiency and marital discord, as suggested by the theoretical framework presented
in the paper.