Mortality,the Trade‐off between Child Quality and Quantity,and Demo‐economic Development

An economy is investigated where parents observe wage rates, interest rates and child mortality and decide about savings and the quantity and quality of their children. Expenditure on child quality causes human capital accumulation as an external effect. If mortality is high parents prefer to have many children and spend only essential rearing effort. Without human capital accumulation the economy may stabilize in an equilibrium of economic stagnation and high population growth. If mortality is low parents prefer to have only few children and spend comparatively large fractions of income on their quality. With human capital accumulation the economy is capable of long‐run growth. The paper also shows the possibility of an endogenously explained demographic transition and a development aid program on education is discussed.