From a paper by Basu, Narayan and Ravallion, Is literacy shared within households? Theory and evidence for Bangladesh (might be gated for non-university IPs) in the journal Labour Economics, 2001.
Intuition and piecemeal evidence suggest that literacy has positive externalities on earnings of others in the household. That is, a literate person is likely to share some of the benefits of his or her literacy with other members of the household. This means that it is better to be an illiterate in a household where there is someone literate than in a household of only illiterates. We have tested this hypothesis in two ways. Firstly, we have asked whether it can be derived from a consistent set of assumptions about household behavior. Our theoretical analysis of the household, based on the collectivist model of the household, confirms that it can make sense for agents to share their education with others in the household. Secondly, we have tested if the hypothesis stands up to systematic scrutiny in earnings data for Bangladesh. We found that it not only stands up, it does so with a considerable amount of robustness. Controlling for observed personal attributes, an illiterate worker earns appreciably more in the non-farm sector when living in a family with at least one literate member. This finding is robust to the tests we perform for selection bias and marital sorting. The empirical investigation has yielded insights deeper than what we had anticipated on the basis of theory and intuition. It is, for instance, widely noted that a literate mother confers greater benefits on the children than a literate father. But what about differences between male and female recipients? Is there any reason to believe that a female is better able to absorb the benefits of literacy in the household than a male illiterate? While theory suggests that they can have differences, it gives no hint as to which way this may go. Our empirical results suggest that women are more efficient recipients.
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