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Working Paper

Efficient Investment in Children

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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 childcare markets are also lacking is then examined. Additionally, the consequences of impure altruism are analyzed.
05.01.2001ISSN 2573-7953 WP 01-05DOI 10.26509/frbc-wp-200105
Keywords investment in children, lack of childcare markets
JEL Classification Codes D1, D31, D58, I2

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Aiyagari, S. Rao, Jeremy Greenwood, and Ananth Seshradi. 2001. “Efficient Investment in Children.” Federal Reserve Bank of Cleveland, Working Paper No. 01-05. https://doi.org/10.26509/frbc-wp-200105