The quality–quantity trade-off in fertility across parent earnings levels: a test for credit market failure

Abstract

The dominant economic theory of the family explains the negative correlation between family size and child achievement, a ‘quality–quantity trade-off’, through borrowing constraints and credit market failure. This paper presents a model in which the opportunity cost of time spent with children is increasing, thus creating a trade-off even in economies with perfect credit markets. While both produce a family size effect, temporal and financial constraints predict different patterns for the trade-off across levels of parent income. Using data from the National Child Development Study, the trade-off is found even among high-earning families who presumably do not face credit constraints. Moreover, the trade-off does not grow as parent earnings diminish. Both of these findings suggest that temporal and not financial constraints explain the quality–quantity trade-off.