Changing Families: Family Relationships, Parental Decisions and Child Development

We develop a tractable economic model to study the impact of family structure on children's cognitive and non-cognitive outcomes. Using panel data on both biological parents' behavior irrespective of subsequent relationship status, social fathers, and a set of exclusion restrictions, we identify the joint unobserved heterogeneity of the parents in our choice model, and examine child skill formation via a control function approach. Investments made by high-ability fathers carry positive and significant returns, whereas low-ability fathers may generate negative returns. Hence, policies that incentivize family formation should consider the quality of the fathers which mothers are cohabited with.