Wednesday, August 3, 2011

Do exogenous increases in the # of children lower child quality? — Marginal Revolution

Do exogenous increases in the # of children lower child quality? — Marginal Revolution

Another, slightly different, interpretation is that parents want to invest in children until the expected marginal return is very low and parents are risk averse, meaning that parents on average over-invest as a form of insurance on the undiversified portfolio. The insurance does not noticeably affect the mean outcome, but could reduce the risk of bad outcomes enough that individual parents rationally buy the insurance of over-investing in their children from a societal point of view. Society cares about the mean the parent cares about their own.

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