| Summary: | Because credit and insurance markets are imperfect and intrafamily transfers and how children use their time outside school hours are private information, the second-best policy makes school enrollment compulsory, forces overt child labor below its efficient level (if positive), and uses a combination of need- and merit-based grants, financed by earmarked taxes, to relax credit constraints, redistribute, and insure. Existing conditional cash transfer schemes can be made to approximate the second-best policy by incorporating these principles in some measure.
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