Children as Family Public Goods: Some Implications for Fertility
A two-stage bargaining model is developed to describe how fertility decisions are made in a strategic family setting. Given the assumption that family contracts are incomplete and cannot be used to enforce optimal behavior, it is shown that investments in children (i.e. the fertility rate) may be sub-optimal. This is because the woman may find it in her interest to invest too little in children in stage 1 of the model in order to protect her bargaining status in stage 2. I then consider in the context of this model the impact on fertility rates of changes in child custody rules (in the case of divorce), the wage rate, and the male-female wage differential. I conclude by exploring how the introduction of child subsidies can change the results.
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