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Efficient Investment in Children

Author

Listed:
  • 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.

Suggested Citation

  • S. Rao Aiyagari & Jeremy Greenwood & Ananth Seshadri, 2001. "Efficient Investment in Children," RCER Working Papers 481, University of Rochester - Center for Economic Research (RCER).
  • Handle: RePEc:roc:rocher:481
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    References listed on IDEAS

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    More about this item

    Keywords

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

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • I2 - Health, Education, and Welfare - - Education

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