Habit Formation, Dynastic Altruism, and Population Dynamics

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Habit Formation, Dynastic Altruism, and Population Dynamics

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Andreas Schäfer () (University of Leipzig, Institute of Theoretical Economics / Macroeconomics, Leipzig, Germany)
Simone Valente () (ETH Zurich, Department of Management, Technology, and Economics)

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Simone Valente

Abstract

We study the general equilibrium properties of two growth models with overlapping generations, habit formation and endogenous fertility. In the neoclassical model, habits modify the economy's growth rate and generate transitional dynamics in fertility; station- ary income per capita is associated with either increasing or decreasing population and output, depending on the strength of habits. In the AK specification, growing population and increasing consumption per capita require that the habit coefficient lie within definite boundaries; outside the critical interval, positive growth is associated with either declining consumption due to overcrowding, or extinction paths with declining population. In both frameworks, habits reduce fertility: the trade-off between second-period consumption and spending for bequests prompts agents to decrease fertility in order to make parental altru- ism less costly. This mechanism suggests that status-dependent preferences may explain part of the decline in fertility rates observed in most developed economies.

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Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series Economics working paper series with number 07/77.

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Length: 34 pages
Date of creation: Nov 2007
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Handle: RePEc:eth:wpswif:07-77

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Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
J10 - Labor and Demographic Economics - - Demographic Economics - - - General
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-11-24 (All new papers)
NEP-DGE-2007-11-24 (Dynamic General Equilibrium)

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Hans Gersbach & Volker Hahn, 2008. "Forward Guidance for Monetary Policy: Is It Desirable?," Economics working paper series 08/84, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
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Ian A. MacKenzie,, 2008. "On the Sequential Choice of Tradable Permit Allocations," Economics working paper series 08/83, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
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