You Are What Your Parents Think : Height and Local Reference Points

Recent estimates are that about 150 million children under five years of age are stunted, with significant long-run negative consequences on their schooling, cognitive skills, health and economic productivity. Understanding what determines such growth retardation, therefore, is very important. We build a structural model for nutritional choices and health with reference-dependent preferences. Parents care about the relative health of their child compared to some reference population. In our empirical model, we use height as the health outcome parents target, and reference height is an equilibrium object determined by parental nutritional choices for earlier cohorts in the same village. Taking advantage of a protein-supplementation experiment in Guatemala, we use exogenous variations in differential height growth paths between treated and control villages to estimate the model. We conduct a number of counterfactual policy simulations. First, we find that reference-point changes account for up to 60\% of the 1.7cm in height difference between experimental and control villages at 24 months of age. Second, focusing on one-period effects, to obtain the same mean effects as an 1 cm increase in reference points would require a protein-price discount of 37 percent or an income increase of 60 percent. Third, endogenous reference-point changes lead to significant policy spillovers: under poor-targeted subsidy policies, richest households over time gain up to 50 percent of the height gains of poorest households; under an universal subsidy policy, poorest households' height gains increase from an initially small change by up to 4.8 times across periods as richest households, who also receive subsidies, help push-up height reference points