“Essays on Human Capital and Social Capital”

							                                         Dissertation Abstract
                   “Essays on Human Capital and Social Capital”
                                            Fali Huang
                                     University of Pennsylvania
My research focuses on investing in people to improve social welfare and economic growth. The results of
this investment include human capital in individual people and social capital in groups. My dissertation is
composed of three essays in this general conceptual framework. The first essay studies the formation of
social capital in a game theoretic setting. It shows that social capital is naturally linked with people’s
human capital in a society. The second essay is an empirical estimation of production functions for child
cognitive and social development using NLSY data, which is the first step of a project aimed at structurally
estimating how parents invest in their children. The third essay analyzes the efficiency rationale for relative
rank concerns from a group perspective.

                     “Social Capital, Cooperation, and Human Capital”
In this paper I study the formation of social capital and its effects in a game theoretic setting. I formalize
the concept of social trust and show that appropriate social trust enables strangers to cooperate in a one-
period prisoner's dilemma. The relationship between several widely used forms of social capital is
characterized. The analysis also sheds lights on the strong externality of the social component of human
capital among people and suggests an important link between human capital and social capital. Social trust
is determined in equilibrium by the aggregate choices of optimizing individual players. Multiple equilibria
are possible, which implies that social capital levels may be history dependent. Those people with highest
investment costs play a crucial role in determining whether there exists under-investment in social trust.
The model suggests several ways to improve long run social trust. It provides new insights in the complex
relationship between formal institutions and social capital. It also shows the importance of families,
schools, and mass media in affecting the formation of social trust in the society. The paper provides some
plausible explanations for many stylized facts in the empirical literature on social capital.

                “Estimations of Child Development Production Functions”
In the paper production functions of child cognitive and social development are estimated in a general
behavioral model of parents. A sample of eight- and nine-year old children from NLSY(79) child data is
used, which includes over two hundred home and school inputs starting from mother's prenatal care period.
A tree-structured regression is used instead of the conventional linear regression. The estimation is
conducted under various specifications used in the literature, including value-added and within-child
difference methods. The estimation results show that historical inputs are important in that they not only
have direct effects on future child development results, but also may affect children abilities. And in most
cases earlier scores are not sufficient statistics for historical inputs. Specifically, the number of books a
child has at various ages, how often a child reads for self-enjoyment, and how often a mother reads to her
young child are the most important inputs in predicting a child's math and reading scores. Child behavioral
problems at age eight and nine are mostly associated with parents' discipline frequencies, while at younger
ages they are also affected by books and readings. Children's innate abilities seem to have large effects on
child development. The effects of race and maternal employment are also discussed.

     “Relative Rank Concern and Social Learning” (with Hanming Fang, work in progress)
We care about our standing relative to other members in our social group. In this paper we provide a simple
model to illustrate the efficiency rationale for such relative rank concerns. We can either learn by ourselves
(self-learning) or through interacting with others in our group (social learning). Group productivity is
determined by total learning efforts made by all members. If an individual member’s self and social
learning efforts are not perfectly measured, the total learning may be inefficient in terms of group welfare.
Suppose group members know each other’s detailed learning efforts. It is possible that concerns about our
relative contribution to group productivity can facilitate optimal learning. We characterize equilibrium
relative rank concerns in a group and study how group size and composition are affected.