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Abstract
This dissertation consists of two chapters focusing on understanding how households perceived returns and preferences shape their behaviors in developing countries. Although the importance of perceived returns and preferences has been recognized in theoretical models of household behavior, empirical applications are limited because perceived returns are so rarely measured, especially in developing contexts. Chapter 1 uses a novel survey design based on hypothetical investment scenarios to measure parental perceived returns to their investment in early skill formation of young children and provides empirical evidence on the role of parental perceived returns and socio-economic status on actual investment behaviors using panel data of 1,575 young children in China. We find that, on average, caregivers with higher socio-economic backgrounds have significantly higher perceived returns to investment in children. Only households with low socio-economic status are more likely to invest more time in their children as their perceived returns increases. Chapter 2 examines how preferences of households shape their diet quality in Africa, given incomes and prices faced. It offers the first comprehensive set of demand models for six sub-Saharan African countries using Exact Affine Stone Index censored demand systems, which are using panel data, flexible, utility-theoretic, control for unobserved heterogeneity, and account for bias arising from unobserved quality heterogeneity and from price search behavior. Using the demand models, we simulate responses of households to an unconditional cash transfer and to price vouchers targeting different types of foods. The results show that the expenditure elasticities and price elasticities of demand for micro- and macro- nutrients vary with households’ socio-economic status. There is a strong link between poverty reduction and diet quality improvement. Cash transfer and some price vouchers could effectively close dietary intake gaps and improve the nutrient density of diets for poor consumers.