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Property rights and efficiency in OLG models with endogenous fertility

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  • Schoonbroodt, Alice
  • Tertilt, Michele

Abstract

Is there an economic rationale for pronatalist policies? We propose and analyze a particular market failure that leads to inefficiently low fertility in equilibrium. The friction is caused by the lack of ownership of children: if parents have no claim on their children’s income, the private benefit from producing a child can be smaller than the social benefit. We analyze an overlapping-generations model with fertility choice and parental altruism. Ownership is modeled as a minimum constraint on transfers from parents to children. Using the efficiency concepts proposed in Golosov, Jones, and Tertilt (2007), we find that whenever the transfer floor is binding, fertility choices are inefficient. Second, we show that the usual conditions for efficiency are not sufficient in this context. Third, in contrast to settings with exogenous fertility, a PAYG social security system cannot be used to implement efficient allocations. To achieve an efficient outcome, government transfers need to be tied to fertility choice. Keywords; overlapping generations, fertility, efficiency

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Bibliographic Info

Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 1020.

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Date of creation: 01 Dec 2010
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Handle: RePEc:stn:sotoec:1020

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  1. David DE LA CROIX & Matthias DOEPKE, 2002. "Public versus Private Education When Diferential Fertility Matters," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002013, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521001151.
  3. J. Ignacio Conde-Ruiz & Eduardo L. Gim�Nez & Mikel P�Rez-Nievas, 2010. "Millian Efficiency with Endogenous Fertility," Review of Economic Studies, Wiley Blackwell, vol. 77(1), pages 154-187, 01.
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Cited by:
  1. Julio Davila, 2011. "Optimal population and education," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00653997, HAL.
  2. Alice Schoonbroodt, 2012. "Intergenerational Transfers, Living Arrangements and Development," 2012 Meeting Papers 158, Society for Economic Dynamics.
  3. Michèle Tertilt, 2012. "The Research Agenda: Michèle Tertilt on Gender in Macroeconomics," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 14(1), November.
  4. Larry E. Jones & Alice Schoonbroodt, 2010. "Baby Busts and Baby Booms: The Fertility Response to Shocks in Dynastic Models," NBER Working Papers 16596, National Bureau of Economic Research, Inc.

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