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A Contribution to the Economic Theory of Fertility

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  • Cordoba, Juan Carlos
  • Ripoll, Marla

Abstract

The evidence strongly suggests a robust negative relationship between income and fertility, and a positive relationship between income and longevity. This is puzzling for standard dynamic models. For instance, altruistic models that use the most standard preferences in macro --time separable CRRA with low elasticity of intertemporal substitution (EIS)-- correctly predict a positive longevity-income relationship for rich individuals, but also predict a positive fertility-income relationship, contrary to the data. We show that a non-separable formulation of preferences that allows for a low EIS but a high "elasticity of intergenerational substitution" (EGS) can simultaneously account for the evidence of declining demand for children and increasing demand for longevity as income increases. The model with a single elasticity cannot account for both. Our results suggests a major role for a new parameter in macro, the EGS. While the EIS mostly influences short-term economic decisions, the EGS influences mostly long-term economic choices.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 33899.

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Date of creation: 20 Jun 2011
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Handle: RePEc:isu:genres:33899

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Keywords: Fertility; Altruism; Non-separable Preferences; Frictions;

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References

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Citations

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Cited by:
  1. Cordoba, Juan Carlos & Ripoll, Marla, 2013. "What explains schooling differences across countries?," Staff General Research Papers 36066, Iowa State University, Department of Economics.
  2. Cordoba, Juan Carlos, 2012. "Children and the Wealth of Nations," Staff General Research Papers 34989, Iowa State University, Department of Economics.
  3. Cordoba, Juan Carlos & Liu, Xiying, 2014. "Altruism, Fertility and Risk," Staff General Research Papers 37481, Iowa State University, Department of Economics.
  4. Cordoba, Juan Carlos & Ripoll, Marla, 2014. "Intergenerational Transfers and the Fertility-Income Relationship," Staff General Research Papers 37662, Iowa State University, Department of Economics.
  5. Cordoba, Juan Carlos & Ripoll, Marla, 2012. "Barro-Becker with Credit Frictions," Staff General Research Papers 35531, Iowa State University, Department of Economics.

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