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Property rights and efficiency in OLG models with endogenous fertility

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  • Schoonbroodt, Alice
  • Tertilt, Michèle

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 childrenʼs income, the private benefit from producing a child can be smaller than the social benefit. We analyze an overlapping-generations (OLG) 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 [38], 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.

Suggested Citation

  • Schoonbroodt, Alice & Tertilt, Michèle, 2014. "Property rights and efficiency in OLG models with endogenous fertility," Journal of Economic Theory, Elsevier, vol. 150(C), pages 551-582.
  • Handle: RePEc:eee:jetheo:v:150:y:2014:i:c:p:551-582
    DOI: 10.1016/j.jet.2013.09.016
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    Cited by:

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    2. Larry Jones & Alice Schoonbrodt, 2016. "Baby Busts and Baby Booms: The Fertility Response to Shocks in Dynastic Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 22, pages 157-178, October.
    3. Juan Cordoba & Marla Ripoll & Xiying Liu, 2019. "Accounting for the International Quantity-Quality Trade-off," 2019 Meeting Papers 156, Society for Economic Dynamics.
    4. Thibault, Emmanuel, 2016. "Demonstration effect and dynamic efficiency," Economics Letters, Elsevier, vol. 147(C), pages 42-45.
    5. Ait Benhamou, Zouhair & Cassin, Lesly, 2021. "The impact of remittances on savings, capital and economic growth in small emerging countries," Economic Modelling, Elsevier, vol. 94(C), pages 789-803.
    6. Stelter, Robert, 2014. "Over-aging: Are present human populations too old?," Thuenen-Series of Applied Economic Theory 137, University of Rostock, Institute of Economics.
    7. Lesly Cassin, 2018. "The effects of migration and pollution externality on cognitive skills in Caribbean economies: a Theoretical analysis," EconomiX Working Papers 2018-30, University of Paris Nanterre, EconomiX.
    8. Henning Bohn & Charles Stuart, 2015. "Calculation of a Population Externality," American Economic Journal: Economic Policy, American Economic Association, vol. 7(2), pages 61-87, May.
    9. Robert TAMURA & David CUBERES, 2020. "Equilibrium and A-efficient Fertility with Increasing Returns to Population and Endogenous Mortality," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 86(2), pages 157-182, June.
    10. Larry Jones & Alice Schoonbrodt, 2016. "Baby Busts and Baby Booms: The Fertility Response to Shocks in Dynastic Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 22, pages 157-178, October.
    11. Michèle Tertilt, 2012. "The Research Agenda: Michèle Tertilt on Gender in Macroeconomics," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 14(1), November.
    12. Cordoba, Juan Carlos & Liu, Xiying, 2014. "Altruism, Fertility and Risk," Staff General Research Papers Archive 37481, Iowa State University, Department of Economics.
    13. Shintaro Yamaguchi, 2017. "Family Policies and Female Employment in Japan," The Japanese Economic Review, Springer, vol. 68(3), pages 305-322, September.
    14. Juan Carlos Córdoba & Marla Ripoll, 2016. "Intergenerational Transfers and the Fertility–Income Relationship," Economic Journal, Royal Economic Society, vol. 126(593), pages 949-977, June.
    15. Pérez-Nievas, Mikel & Conde-Ruiz, José I. & Giménez, Eduardo L., 2019. "Efficiency and endogenous fertility," Theoretical Economics, Econometric Society, vol. 14(2), May.
    16. Zou, Tieding, 2017. "延迟退休的制约因素、政策效果与动态研究方法评价 [Restriction, Policy Effect and Dynamic Research Method to Delay Retirement]," MPRA Paper 85556, University Library of Munich, Germany, revised 30 Jan 2018.
    17. Shintaro Yamaguchi, 2016. "Family Policies and Female Employment in Japan," Department of Economics Working Papers 2016-06, McMaster University.
    18. Bandyopadhyay, Debasis & La Pere, Anatoly, 2020. "Raising productivity with pension premium," Economic Modelling, Elsevier, vol. 92(C), pages 295-308.
    19. Oliwia Komada, 2015. "Children as a public good in PAYG pension system," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 43.
    20. Liu, Xiying, 2015. "Optimal population and policy implications," ISU General Staff Papers 201501010800005546, Iowa State University, Department of Economics.
    21. Alice Schoonbroodt, 2012. "Intergenerational Transfers, Living Arrangements and Development," 2012 Meeting Papers 158, Society for Economic Dynamics.
    22. Doepke, Matthias, 2013. "Exploitation, Altruism, and Social Welfare: An Economic Exploration," CEPR Discussion Papers 9509, C.E.P.R. Discussion Papers.
    23. Shintaro Yamaguchi, 2017. "Family Policies and Female Employment in Japan," The Japanese Economic Review, Japanese Economic Association, vol. 68(3), pages 305-322, September.
    24. Stelter, Robert, 2016. "Over-aging — Are present-day human populations too old?," Mathematical Social Sciences, Elsevier, vol. 82(C), pages 116-143.
    25. Zouhair Aït Benhamou & Lesly Cassin, 2018. "The effects of migration and remittances on development and capital in Caribbean Small Island Developing States," EconomiX Working Papers 2018-41, University of Paris Nanterre, EconomiX.

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    More about this item

    Keywords

    Overlapping generations; Fertility; Efficiency;
    All these keywords.

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth

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