Children as Insurance.

This paper presents a dynamic model of fertility decisions in which children serve as an incomplete insurance good. The model incorporates uncertainty about future income and the survival of children as well as a discrete representation of the number of children. It provides an alternative explanation to the negative relation between fertility and the education of the parents, and especially the mother's education. The model also demonstrates why parents demand children even if the return is negative and explains why fertility might rise with with increasing income when income is low and decrease when income is high. Furthermore, the model can account for the decline in fertility when the risk of infant and child mortality decreases. The implications for empirical tests of the demand for children are also examined.