Abstract
Family background and school supply underlie the demand and supply for schooling, but are usually ignored in empirical estimates. These considerations are investigated for two generations in Nicaragua, using unique data on adult sisters and their offspring to identify inter- versus intrafamilial effects and to control for unobserved family background. The results suggest that the standard interpretations are misleading: (1) Unobserved family background and school-supply factors are important in schooling determination. (2) Omission of these factors leads to overestimates of impacts of parental schooling and family size. (3) Both parental schooling and family size primarily represent unobserved family background and school supply in standard estimates.
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