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Efficient investment in children

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  • S. Rao Aiyagari
  • Jeremy Greenwood
  • Anath Seshardi

Abstract

If children are society’s most precious resource, as many would argue, how should we invest in them? To gain insight into this question, the authors develop a dynamic, general-equilibrium model in which children differ by ability. Parents invest time and money in their offspring, depending on their altruism, to help them grow into more productive adults. The authors characterize the efficient allocation, then compare it with the outcome that arises when financial markets are incomplete. They also examine the situation where childcare markets are lacking and analyze the consequences of impure altruism.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0105.

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Date of creation: 2001
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Handle: RePEc:fip:fedcwp:0105

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