A Dynamic Model of Contraceptive Choice of Spanish Couples

In this paper we propose a simple dynamic stochastic model of sterilization and contraceptive use and we estimate its structural parameters using a sample of married couples from the 1995 Spanish Family and Fertility Survey. The estimated structural model improves on previous studies in terms of its ability to rationalize observed behavior. The large proportion of women contracepting at parity 0 is interpreted as evidence of 'precautionary' contraceptive behavior. Allowing for simple forms of permanent unobserved heterogeneity across couples in their ability to conceive has important implications for estimates of utility and cost parameters. Our estimates of child valuation parameters imply that most Spanish couples would have two children, but significant deviations from this goal are brought about by imperfect and costly fertility control. Our simulations suggest that the introduction of sterilization has reduced fertility by an average of 0.2 children per couple, and that the availability of more effective reversible contraceptive methods would reduce expected fertility by up to 0.4 children per couple.