Angus Armstrong

Parental beliefs, recognised by child psychologists as a causal influence on early development, are incorporated into a two-period model of human capital accumulation. In the first period parents transfer their beliefs, distinct from genes, to their child by signalling their "belief in a just world" or the perceived return to effort. The child responds by choosing effort, irrespective of the real world returns, which combines early with their genes to create their ability. This ability determines the rate of return to second period investment and final attainment. This is an ontological model, in the sense that children's beliefs influence the attainment they achieve. The identifying assumption is that parent beliefs are slow-moving and they are not conditioned on the child. If parents are credit constrained, then both beliefs and income determine attainment. Empirical analysis using the NCDS shows that beliefs are a strong predictor of early attainment and reduces the importance of parental income or wealth. This justifies effective mentoring programmes for children with problem parents.