Greenwood, and Aranth Seshadri 2002; and Roland Bénabou 2002). The implicit assumption in this approach is that inputs into the production of skills at different stages of childhood are perfect substitutes. We argue that to account for a large body of evidence, it is important to build a model of skill formation with multiple stages of childhood, where inputs at different stages are complements, and where there is self productivity of investment. In addition, in order to rationalize the evidence, it is important to recognize three distinct credit constraints operating on the family and its children. First, the inability of a child to choose its parents. This is the fundamental constraint imposed by the accident of birth. Second, the inability of parents to borrow against their children’s future income to finance investments in them. Third, the inability of parents to borrow against their own income to finance investments in their children. This …