IDEAS home Printed from https://ideas.repec.org/p/geo/guwopa/gueconwpa~11-11-03.html
   My bibliography  Save this paper

Fertility and Consumption when Having a Child is a Risky Investment

Author

Abstract

This paper studies children as a risky asset associated to an investment option. Children provide utility but have a stochastic maintenance cost. We obtain several new results relative to models where children are deterministic goods, among which: i) Higher child risks diminish fertility and consumption. ii) Risk aversion speeds up fertility as households use the safe utility derived from a child as insurance against fluctuations in consumption. iii) Fertility is increasing in the correlation between income and child cost shocks. The household is reluctant to have children when positive cost shocks come together with bad income shocks. The opposite result happens when children hedge income shocks. iv) The sign of the correlation determines whether higher income volatility speeds up or delays fertility.

Suggested Citation

  • Pedro Gete and Paolo Porchia, 2011. "Fertility and Consumption when Having a Child is a Risky Investment," Working Papers gueconwpa~11-11-03, Georgetown University, Department of Economics.
  • Handle: RePEc:geo:guwopa:gueconwpa~11-11-03
    as

    Download full text from publisher

    File URL: http://www8.georgetown.edu/departments/economics/pdf/1103.pdf
    File Function: Full text
    Download Restriction: None
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rajeev Dehejia & Adriana Lleras-Muney, 2004. "Booms, Busts, and Babies' Health," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 1091-1130.
    2. Sumon Kumar Bhaumik & Jeffrey B. Nugent, 2005. "Does Economic Uncertainty Affect the Decision to Bear Children? Evidence from East and West Germany," William Davidson Institute Working Papers Series wp788, William Davidson Institute at the University of Michigan.
    3. repec:pri:cheawb:adriana_booms.pdf is not listed on IDEAS
    4. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
    5. Gary S. Becker & Kevin M. Murphy & Robert Tamura, 1994. "Human Capital, Fertility, and Economic Growth," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 323-350, National Bureau of Economic Research, Inc.
    6. Terry, Stephen J. & Knotek II, Edward S., 2011. "Markov-chain approximations of vector autoregressions: Application of general multivariate-normal integration techniques," Economics Letters, Elsevier, vol. 110(1), pages 4-6, January.
    7. Alicia Adsera, 2006. "An Economic Analysis of the Gap Between Desired and Actual Fertility: The Case of Spain," Review of Economics of the Household, Springer, vol. 4(1), pages 75-95, March.
    8. Adsera, Alicia & Menendez, Alicia, 2009. "Fertility Changes in Latin America in the Context of Economic Uncertainty," IZA Discussion Papers 4019, Institute of Labor Economics (IZA).
    9. Juan Carlos Conesa, 2002. "Educational attainment and timing of fertility decisions," Working Papers in Economics 78, Universitat de Barcelona. Espai de Recerca en Economia.
    10. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    11. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
    12. José María Da Rocha & Luisa Fuster, 2006. "Why Are Fertility Rates And Female Employment Ratios Positively Correlated Across O.E.C.D. Countries?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1187-1222, November.
    13. Caballero, Ricardo J, 1991. "Earnings Uncertainty and Aggregate Wealth Accumulation," American Economic Review, American Economic Association, vol. 81(4), pages 859-871, September.
    14. Alícia Adserà, 2011. "The interplay of employment uncertainty and education in explaining second births in Europe," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 25(16), pages 513-544.
    15. Pedro Mira & Namkee Ahn, 2002. "A note on the changing relationship between fertility and female employment rates in developed countries," Journal of Population Economics, Springer;European Society for Population Economics, vol. 15(4), pages 667-682.
    16. Gary S. Becker, 1960. "An Economic Analysis of Fertility," NBER Chapters, in: Demographic and Economic Change in Developed Countries, pages 209-240, National Bureau of Economic Research, Inc.
    17. Larry E. Jones & Alice Schoonbroodt & Michèle Tertilt, 2010. "Fertility Theories: Can They Explain the Negative Fertility-Income Relationship?," NBER Chapters, in: Demography and the Economy, pages 43-100, National Bureau of Economic Research, Inc.
    18. Emanuela Cardia & Serena Ng, 2003. "Intergenerational Time Transfers and Childcare," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 431-454, April.
    19. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
    20. Robert Tamura, 2000. "Growth, fertility and human capital: A survey," Spanish Economic Review, Springer;Spanish Economic Association, vol. 2(3), pages 183-229.
    21. Alicia Adsera, 2005. "Vanishing Children: From High Unemployment to Low Fertility in Developed Countries," American Economic Review, American Economic Association, vol. 95(2), pages 189-193, May.
    22. Michaela R. Kreyenfeld, 2005. "Economic uncertainty and fertility postponement: evidence from German panel data," MPIDR Working Papers WP-2005-034, Max Planck Institute for Demographic Research, Rostock, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Ruixin, 2015. "Essays on development economics and public economics," Other publications TiSEM e1779514-5b71-4726-925b-2, Tilburg University, School of Economics and Management.
    2. Janina Reinkowski, 2013. "Should We Care that They Care? Grandchild Care and Its Impact on Grandparent Health," ifo Working Paper Series 165, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. Janina Reinkowski, 2014. "Empirical Essays in the Economics of Ageing and the Economics of Innovation," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 53.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Paolo Porchia & Pedro Gete, 2011. "Fertility and Consumption when Having a Child is a Risky Investment," 2011 Meeting Papers 563, Society for Economic Dynamics.
    2. Andersen, Signe Hald & Özcan, Berkay, 2021. "The effects of unemployment on fertility," LSE Research Online Documents on Economics 109007, London School of Economics and Political Science, LSE Library.
    3. Do, Quy-Toan & Levchenko, Andrei A. & Raddatz, Claudio, 2016. "Comparative advantage, international trade, and fertility," Journal of Development Economics, Elsevier, vol. 119(C), pages 48-66.
    4. Emilia Bono & Andrea Weber & Rudolf Winter-Ebmer, 2015. "Fertility and economic instability: the role of unemployment and job displacement," Journal of Population Economics, Springer;European Society for Population Economics, vol. 28(2), pages 463-478, April.
    5. Alicia Adsera, 2011. "Where Are the Babies? Labor Market Conditions and Fertility in Europe [Où sont les bébés ? Conditions du marché du travail et fécondité en Europe]," European Journal of Population, Springer;European Association for Population Studies, vol. 27(1), pages 1-32, February.
    6. Andreas Steinhauer, 2018. "Working Moms, Childlessness, and Female Identity," Sciences Po publications 79, Sciences Po.
    7. Giammarco Alderotti & Daniele Vignoli & Michela Baccini & Anna Matysiak, 2019. "Employment Uncertainty and Fertility: A Network Meta-Analysis of European Research Findings," Econometrics Working Papers Archive 2019_06, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
    8. José María Da Rocha & Luisa Fuster, 2003. "Why are Fertility and Female Participation Rates Positively Correlated across OECD countries?," Working Papers 72, Barcelona School of Economics.
    9. Sekyu Choi, 2017. "Fertility Risk In The Life Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(1), pages 237-259, February.
    10. Hans Fehr & Daniela Ujhelyiova, 2013. "Fertility, Female Labor Supply, and Family Policy," German Economic Review, Verein für Socialpolitik, vol. 14(2), pages 138-165, May.
    11. Angela Luci-Greulich & Olivier Thévenon, 2014. "Does Economic Advancement ‘Cause’ a Re-increase in Fertility? An Empirical Analysis for OECD Countries (1960–2007)," European Journal of Population, Springer;European Association for Population Studies, vol. 30(2), pages 187-221, May.
    12. Steinhauer, Andreas, 2018. "Working Moms, Childlessness, and Female Identity," CEPR Discussion Papers 12929, C.E.P.R. Discussion Papers.
    13. repec:hal:spmain:info:hdl:2441/1a68qg411o9bg9jp7fhgh60n5p is not listed on IDEAS
    14. Wolfgang Auer, 2018. "Empirical Essays on the Socioeconomic Consequences of Economic Uncertainty," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 79.
    15. Aksoy, Cevat Giray, 2014. "Are Fertility Responses to Local Unemployment Shocks Homogenous Across Social Strata? Evidence from England, 1994 to 2010," MPRA Paper 58292, University Library of Munich, Germany.
    16. Andreas Steinhauer, 2018. "Working Moms, Childlessness, and Female Identity," Working Papers hal-03475468, HAL.
    17. De loecker, Jan & Asker, John & Collard-Wexler, Allan, 2011. "Productivity volatility and the misallocation of resources in developing economies," CEPR Discussion Papers 8469, C.E.P.R. Discussion Papers.
    18. Emilia Del Bono & Andrea Weber & Rudolf Winter-Ebmer, 2012. "Clash Of Career And Family: Fertility Decisions After Job Displacement," Journal of the European Economic Association, European Economic Association, vol. 10(4), pages 659-683, August.
    19. Chiara Ludovica Comolli, 2017. "The fertility response to the Great Recession in Europe and the United States: Structural economic conditions and perceived economic uncertainty," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 36(51), pages 1549-1600.
    20. Matthias Doepke & Anne Hannusch & Fabian Kindermann & Michèle Tertilt, 2022. "The Economics of Fertility: A New Era," NBER Working Papers 29948, National Bureau of Economic Research, Inc.
    21. Kristiina Huttunen & Jenni Kellokumpu, 2016. "The Effect of Job Displacement on Couples' Fertility Decisions," Journal of Labor Economics, University of Chicago Press, vol. 34(2), pages 403-442.

    More about this item

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • A10 - General Economics and Teaching - - General Economics - - - General
    • G00 - Financial Economics - - General - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:geo:guwopa:gueconwpa~11-11-03. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marcia Suss (email available below). General contact details of provider: http://econ.georgetown.edu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.