Property rights and efficiency in OLG models with endogenous fertility

Is there an economic rationale for pronatalist policies? We propose and analyze a particular market failure that leads to inefficiently low fertility in equilibrium. The friction is caused by the lack of ownership of children: if parents have no claim on their children’s income, the private benefit from producing a child can be smaller than the social benefit. We analyze an overlapping-generations model with fertility choice and parental altruism. Ownership is modeled as a minimum constraint on transfers from parents to children. Using the efficiency concepts proposed in Golosov, Jones, and Tertilt (2007), we find that whenever the transfer floor is binding, fertility choices are inefficient. Second, we show that the usual conditions for efficiency are not sufficient in this context. Third, in contrast to settings with exogenous fertility, a PAYG social security system cannot be used to implement efficient allocations. To achieve an efficient outcome, government transfers need to be tied to fertility choice. Keywords; overlapping generations, fertility, efficiency

Does Female Empowerment Promote Economic Development?

Empirical evidence suggests that money in the hands of mothers (as opposed to their husbands) benefits children. Does this observation imply that targeting transfers to women is good economic policy? We develop a series of noncooperative family bargaining models to understand what kind of frictions can give rise to the observed empirical relationships. We then assess the policy implications of these models. We find that targeting transfers to women can have unintended consequences and may fail to make children better off. Moreover, different forms of empowering women may lead to opposite results. More research is needed to distinguish between alternative theoretical models.female empowerment, gender equality, development, theory of the household, marital bargaining

Does female empowerment promote economic development ?

Empirical evidence suggests that money in the hands of mothers (as opposed to their husbands) benefits children. Does this observation imply that targeting transfers to women is good economic policy? The authors develop a series of noncooperative family bargaining models to understand what kind of frictions can give rise to the observed empirical relationships. Then they assess the policy implications of these models. The authors find that targeting transfers to women can have unintended consequences and may fail to make children better off. Moreover, different forms of empowering women may lead to opposite results. More research is needed to distinguish between alternative theoretical models.Economic Theory&Research,Gender and Law,Debt Markets,Inequality,Public Sector Economics

An Economic History of Fertility in the U.S.: 1826-1960

In this paper, we use data from the US census to document the history of the relationship between fertility choice and key economic indicators at the individual level for women born between 1826 and 1960. We find that this data suggests several new facts that should be useful for researchers trying to model fertility. (1) The reduction in fertility known as the Demographic Transition (or the Fertility Transition) seems to be much sharper based on cohort fertility measures compared to usual measures like Total Fertility Rate; (2) The baby boom was not quite as large as is suggested by some previous work; (3) We find a strong negative relationship between income and fertility for all cohorts and estimate an overall income elasticity of about -0.38 for the period; (4) We also find systematic deviations from a time invariant, isoelastic, relationship between income and fertility. The most interesting of these is an increase in the income elasticity of demand for children for the 1876-1880 to 1906-1910 birth cohorts. This implies an increased spread in fertility by income which was followed by a dramatic compression.

Efficiency with Endogenous Population Growth

In this paper, we generalize the notion of Pareto-efficiency to make it applicable to environments with endogenous populations. Two efficiency concepts are proposed, P-efficiency and A-efficiency. The two concepts differ in how they treat potential agents that are not born. We show that these concepts are closely related to the notion of Pareto-efficiency when fertility is exogenous. We then prove versions of the first welfare theorem assuming that decision making is efficient within the dynasty. We discuss two sets of sufficient conditions for noncooperative equilibria of family decision problems to be efficient. These include the Barro and Becker model as a special case. Finally, we study examples of equilibrium settings in which fertility decisions are not efficient, and classify them into ones where inefficiencies arise inside the family and ones where they arise across families.pareto optimality, first welfare theorem, fertility, dynasty, altruism

Families as Roommates: Changes in U.S. Household Size from 1850 to 2000

The size of the average American household has fallen dramatically -from six in 1850 to three in 2000. To explain this decline we model households as collections of roommates who share the costs of household public goods. If private goods are more income elastic than public goods, as we document in the paper, an increase in income endogenously leads to smaller households. We calibrate the model to match data from 2000. Changing incomes to their 1850 levels, we find that our mechanism can explain 37 percent of the observed reduction in the number of adults per household and 16 percent of the reduction in the number of children.Household size, living arrangements, roommates, economies of scale, household public goods, fertility decline.

Accounting for the Rise in Consumer Bankruptcies

Personal bankruptcies in the United States have increased dramatically, rising from 1.4 per thousand working age population in 1970 to 8.5 in 2002. We use a heterogeneous agent life-cycle model with competitive financial intermediaries who can observe households’ earnings, age and current asset holdings to evaluate several commonly offered explanations. We find that increased uncertainty (income shocks, expense uncertainty) cannot quantitatively account for the rise in bankruptcies. Instead, stories related to a change in the credit market environment are more plausible. In particular, we find that a combination of a decrease in the transactions cost of lending and a decline in the cost of bankruptcy does a good job in accounting for the rise in consumer bankruptcy. We also argue that the abolition of usury laws and other legal changes are unimportant.Consumer Bankruptcy, Uncertainty, Credit Markets, Stigma

The Economics and Politics of Women's Rights

Women's rights and economic development are highly correlated. Today, the discrepancy between the legal rights of women and men is much larger in developing compared to developed countries. Historically, even in countries that are now rich women had few rights before economic development took off. Is development the cause of expanding women's rights, or conversely, do women's rights facilitate development? We argue that there is truth to both hypotheses. The literature on the economic consequences of women's rights documents that more rights for women lead to more spending on health and children, which should benefit development. The political-economy literature on the evolution of women's rights finds that technological change increased the costs of patriarchy for men, and thus contributed to expanding women's rights. Combining these perspectives, we discuss the theory of Doepke and Tertilt (2009), where an increase in the return to human capital induces men to vote for women's rights, which in turn promotes growth in human capital and income per capita.

Consumer bankruptcy: a fresh start

American consumer bankruptcy provides for a Fresh Start through the discharge of a household’s debt. Until recently, many European countries specified a No Fresh Start policy of life-long liability for debt. The trade-off between these two policies is that while Fresh Start provides insurance across states, it drives up interest rates and thereby makes life-cycle smoothing more difficult. This paper quantitatively compares these bankruptcy rules using a life-cycle model with incomplete markets calibrated to the U.S. and Germany. A key innovation is that households face idiosyncratic uncertainty about their net asset holdings (expense shocks) and labor income. We find that expense uncertainty plays a key role in evaluating consumer bankruptcy laws.

Accounting for the Rise in Consumer Bankruptcies

Personal bankruptcies in the United States have increased dramatically, rising from 1.4 per thousand working age population in 1970 to 8.5 in 2002. We use a heterogeneous agent life-cycle model with competitive financial intermediaries who can observe households' earnings, age and current asset holdings to evaluate several commonly offered explanations. We find that increased uncertainty (income shocks, expense uncertainty) cannot quantitatively account for the rise in bankruptcies. Instead, the rise in filings appears to mainly reflect changes in the credit market environment. We find that credit market innovations which cause a decrease in the transactions cost of lending and a decline in the cost of bankruptcy can largely accounting for the rise in consumer bankruptcy. We also argue that the abolition of usury laws and other legal changes are unimportant.