PRODUCTION EXTERNALITIES AND THE EFFICIENCY OF PARENTAL CHILD-CARE CHOICES

The economics of producing and consuming children is an immensely impo rtant but largely neglected area, We model the allocation of parents' time between market production and childcare, a choice driven by both consumption and investment motives, We identify two externalities in t he provision of parental childcare. An intergenerational externality s tems from the effect of today's parents' childcare choices on the prod uctivity of the next generation of workers, An intragenerational exter nality arises when time spent away from productive labour affects the productivity of co-workers. The interaction of these externalities det ermines the efficiency properties of the equilibrium.