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Bounded rationality, expectations, and child labour

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  • Patrick M. Emerson
  • Shawn D. Knabb

Abstract

This paper develops a model with overlapping generations, where the household's optimal fertility, child labour, and education decisions depend on the parents expectations or beliefs about the return to education. It is shown that there exists a range of parental income where the fertility rate is high and children participate in the labour market and receive an incomplete education if a parent believes the return to education is low. The act of participating in the labour market reduces the child's ability to accumulate human capital; thus, the action of sending a child into the labour market is sufficient to ensure that the parents initially pessimistic expectations are fulfilled. It is then shown that a onetime policy intervention, such as banning child labour and mandatory education, can be enough to move a country from the positive child labour equilibrium to an equilibrium with no child labour.

Suggested Citation

  • Patrick M. Emerson & Shawn D. Knabb, 2013. "Bounded rationality, expectations, and child labour," Canadian Journal of Economics, Canadian Economics Association, vol. 46(3), pages 900-927, August.
    • Handle: RePEc:cje:issued:v:46:y:2013:i:3:p:900-927
    DOI: 10.1111/caje.12032
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    Cited by:

    1. Ghulam Abid & Binish Khan & Zeeshan Rafiq & Alia Ahmed, 2015. "Child Trade-Off Theory: A Theoretical Discussion on the Structure, Causes, Consequences and Eradication of Child Labor," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 4(1), pages 24-34, March.
    2. Raymond Boadi Frempong & David Stadelmann, 2021. "Risk preference and child labor: Econometric evidence," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 878-894, May.

    More about this item

    JEL classification:

    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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