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Efficient Investment in Children

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  • S. Rao Aiyagari

    (University of Rochester)

  • Jeremy Greenwood

    ()
    (University of Rochester)

  • Ananth Seshadri

    ()
    (University of Wisconsin)

Abstract

Many would say that children are society's most precious resource. So, how should we invest in them? To gain insight into this question, a dynamic general equilibrium model is developed where children differ by ability. Parents invest time and money in their offspring, depending on their altruism. This allows their children to grow up as more productive adults. First, the efficient allocation is characterized. Next, this is compared with the outcome that arises when financial markets are incomplete. The situation where child-care markets are also lacking is then examined. Additionally, the consequences of impure altruism are analyzed.

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File URL: http://rcer.econ.rochester.edu/RCERPAPERS/rcer_481.pdf
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Bibliographic Info

Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 481.

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Length: 51 pages
Date of creation: May 2001
Date of revision:
Publication status: Forthcoming, Journal of Economic Theory
Handle: RePEc:roc:rocher:481

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Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

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Keywords: Investment in children; efficiency; imperfect financial markets; impure altruism; lack of child-care markets.;

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References

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