Production Externalities and the Efficiency of Parental Childcare Choices.

The economics of producing and consuming children is an immensely important but largely neglected area. The authors model the allocation of parents' time between market production and childcare, a choice driven by both consumption and investment motives. They identify two externalities in the provision of parental childcare. An intergenerational externality stems from the effect of today's parents' childcare choices on the productivity of the next generation of workers. An intragenerational externality arises when time spent away from productive labor affects the productivity of coworkers. The interaction of these externalities determines the efficiency properties of the equilibrium.