Estimating the Returns to Parental Time Investment in Children Using a Life Cycle Dynastic Model

Models of dynastic households have been traditionally used to analyze persistence in earnings and wealth across generations, more recently to study patterns of wealth and fertility, transfers to children and education choices. Using data of two generations from the PSID, this paper develops and estimates a dynastic life-cycle model with endogenous fertility, labor supply and inter-generational transfers. Specifically, individuals choose fertility, labor supply and time investment in children sequentially. The focus of the empirical applications is on the effect of parental time investment on children's labor market outcomes, and the quantity-quality trade-offs involved in fertility decisions across education groups, and households' characteristics.