Fertility and education decisions and child-care policy effects in a Nash-bargaining family model

This paper presents development of a household Nash-bargaining model in an overlapping generation setting to analyze the intergenerational dynamics of education decisions and to analyze cooperatively bargained fertility within a family. A stronger preference by women for the welfare of children induces redistribution from women to men in exchange for higher educational investment in children, although the cost to women of child rearing is compensated by men when women care for their children. Subsequently, this paper presents description of the policy effects on the dynamics that arise from expansion of formal child-care coverage. The policy substitutes time costs that were previously borne by mothers, i.e., a policy targeted at mothers. If the education level of mothers is sufficiently high (low), then the policy lowers (raises) fertility and increases (decreases) investment in education for children in the long term. Most notable is the intermediate case: When a mother’s education level is not too high and not too low, the policy raises both the fertility rate and educational investment in daughters, while probably decreasing investment in sons. The quantity–quality tradeoff for children might not hold. The policy also raises the probability of marriage and the probability of having children.