Decision-Making on Household Investment in Children’s Education and Fertility

Using an empirical family bargaining model, this paper aims to identify couple’s underlying preferences on child education investment, especially in the context of extremely low fertility rates. In contrast to European countries, intense competition in education - often described as an "educational rat race" – is seen as a key factor behind declining fertility rates in East Asia, yet it has received limited detailed analysis. In this paper, we first discuss how educational rat race emerged during the economic downturns of the late 20th century and became a distinctive feature in East Asian societies. We then apply the insights of the collective model developed by Blundell, Chiappori, and Meghir (2005) to analyze the household decision-making process, treating education expenses as public good within household. Using data from Japanese Panel Survey of Consumers (JPSC), we test the model implications and identify the relative preferences of husbands and wives regarding child education expenses. Our findings show that when wives have more bargaining power, spending on child education decreases, while total spending on children increases. Our work is expected to provide a more comprehensive perspective for policymakers to consider prenatal policies aimed at mitigating the educational rat race.