The Dynamics of Fertility, Bargaining, and Human Capital Accumulation

This paper studies the role of intrahousehold bargaining in shaping women’s fertility decisions over the life cycle. I build and estimate a quantitative life-cycle model in which fertility is jointly determined by female labor supply and women’s bargaining power within the household under limited commitment, with endogenous marriage and divorce. A cen tral feature of the model is a dynamic feedback loop: childbirth lowers women’s wages and outside options, weakening their bargaining position and feeding back into subsequent fertility decisions. Exploiting the relaxation of fertility restrictions in China, I document empirically that couples with misaligned fertility preferences exhibit significantly smaller fertility responses and higher divorce rates than couples with aligned preferences. The es timated model replicates these reduced-form moments and further reveals the quantitative importance of limited-commitment frictions in depressing marriage incentives, generating inefficient divorce, and thereby suppressing fertility rates. Eliminating them raises com pleted fertility by 1.77% and marriage rates by 4.48%. Finally, the effectiveness of family policies depends critically on the degree of commitment within the household.