Free-Riding in Firms’ Parental Leave Policies

This paper develops a simple model showing that firms may have an incentive to free ride on parental leave programs provided by other firms rather than invest in their own. The analysis demonstrates that the equilibrium level of parental leave provision is lower than the coordinated level envisioned by government policy, helping to explain the limited use of parental leave observed in several East Asian countries. To address this gap, the paper proposes a subsidy scheme that complements firm-provided parental leave programs and brings the decentralized equilibrium closer to the socially coordinated outcome.