A Stochastic Model of Mortality, Fertility, and Human Capital Investment

Abstract

This paper examines the relationship between fertility and human capital investment, and it’s implications for economic growth, focusing on the e ects of declining mortality. Unlike the existing literature, this paper stresses the role of uncertainty about the number of surviving children. If the marginal utility of a surviving child is convex then there will be a precautionary demand for children. As the mortality rate and thus uncertainty falls, this demand decreases. Furthermore, lower mortality encourages educational investment in children. The key result is that this empirically observed quality-quantity trade o is realized only if uncertainty is incorporated into individual’s optimization problem.Uncertainty, Precautionary demand, Quality-Quantity trade of, Growth