> She doesn't have an incentive of having more than N children, after which payments degrade considerably.

Meaning she gets less money than she got for the first few. But not no money, just less.

> if N is 2, what you subsidy is normal healthy families.

Normal healthy families of social parasites.

http://en.wikipedia.org/wiki/Nadya_Suleman

She also have to spend on children. Let's not count extreme examples because you could also sell children for organs, could not you?

Social parasites are bankers and lawyers, why do you bring moms here, hello!?