Population Policy and Externalities to Childbearing

When individual couples make informed fertility decisions that reflect a concern for the future well-being of their own children, the aggregate demographic outcome should be both socially and individually optimal. This result depends on several assumptions, including the absence of externalities to childbearing—costs and benefits of children that fall on society at large without impinging on their parents directly or passing through markets. Four categories of externalities are here evaluated: reproductive dilution of collective wealth; cost spreading for public goods; public-sector intergenerational transfers—health, education, and pensions; and other governmental expenditures. Intergenerational transfers are found to create large positive externalities in industrial welfare states but small negative ones in Third World countries. Public goods lead to sizable positive externalities in both groups of countries. Other governmental expenditures lead to considerable negative externalities. Collective wealth in the form of publicly owned mineral reserves leads in some cases to enormous negative externalities, while in other cases it is of little importance. No evaluation is attempted for collective environmental wealth, scale returns, or induced technological change.