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Millian Efficiency with Endogenous Fertility

  • J. Ignacio Conde-Ruiz

    ()

    (Spanish Prime Minister's Economic Bureau and FEDEA (Fundación de Estudios de Economía Aplicada))

  • Eduardo L. Gimenez

    ()

    (Universidade de Vigo)

  • Mikel Perez-Nievas

    ()

    (Universidade de Santiago de Compostela)

This paper is concerned with an extension of the notion of Pareto efficiency, referred to as Millian efficiency, to evaluate the performance of symmetric allocations in an overlapping generations setting with endogenous fertility. The criterium of Pareto dominance underlying the notion of Millian efficiency is based exclusively on preferences of those agents who are actually born, and allows only for welfare comparisons of symmetric allocations (i.e, allocations in which all living individuals of the same generation take the same decisions). The main contributions of the paper are the following. First, we provide necessary (static) and sufficient (dynamic) conditions to determine whether an allocation is Millian efficient or not, and we show that the sufficient conditions for dynamic efficiency offered by Cass (1972) and Balasko and Shell (1980) cannot be straightforward applied when fertility decisions are endogenous. Second, we extend the two Fundamental Theorems of Welfare Economics to a framework with endogenous population by characterizing Millian efficient allocations as the equilibria of a decentralized price mechanism. Finally, we present a condition to identify equilibrium allocations as dynamically efficient that exclusively uses the sequence of prices associated to such decentralized equilibria.

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Paper provided by IDEGA - Instituto Universitario de Estudios e Desenvolvemento de Galicia in its series Documentos de trabajo - Analise Economica with number 0037.

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Length: 37 pages
Date of creation: Feb 2006
Date of revision:
Publication status: Published in Review of Economic Studies, January 2010, pages 154-187
Handle: RePEc:edg:anecon:0037
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  1. Mikhail Golosov & Larry E. Jones & Michele Tertilt, 2004. "Efficiency with endogenous population growth," Working Papers 630, Federal Reserve Bank of Minneapolis.
  2. Cigno, Alessandro, 2006. "The political economy of intergenerational cooperation," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
  3. Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December.
  4. Lakshmi Kanta Raut, 1992. "Effect of Social Security on Fertility and Savings: An Overlapping Generations Model," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 27(1), pages 25-43, July.
  5. Galor, Oded & Ryder, Harl E., 1991. "Dynamic efficiency of steady-state equilibria in an overlapping-generations model with productive capital," Economics Letters, Elsevier, vol. 35(4), pages 385-390, April.
  6. van Groezen, Bas & Leers, Theo & Meijdam, Lex, 2003. "Social security and endogenous fertility: pensions and child allowances as siamese twins," Journal of Public Economics, Elsevier, vol. 87(2), pages 233-251, February.
  7. Philippe Michel & Bertrand Wigniolle, 2007. "On Efficient Child Making," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00185259, HAL.
  8. Nerlove, Marc & Razin, Assaf & Sadka, Efraim, 1985. "Population Size: Individual Choice and Social Optima," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 321-34, May.
  9. Alessandro Cigno & Martin Werding, 2007. "Children and Pensions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033690, June.
  10. Eckstein, Zvi & Wolpin, Kenneth I., 1985. "Endogenous fertility and optimal population size," Journal of Public Economics, Elsevier, vol. 27(1), pages 93-106, June.
  11. Cigno, Alessandro, 1992. "Children and Pensions," Journal of Population Economics, Springer, vol. 5(3), pages 175-83, August.
  12. Nerlove, Marc & Razin, Assaf & Sadka, Efraim, 1982. "Population size and the social welfare functions of Bentham and Mill," Economics Letters, Elsevier, vol. 10(1-2), pages 61-64.
  13. Bental, Benjamin, 1989. "The Old Age Security Hypothesis and Optimal Population Growth," Journal of Population Economics, Springer, vol. 1(4), pages 285-301.
  14. Tjalling C. Koopmans, 1963. "On the Concept of Optimal Economic Growth," Cowles Foundation Discussion Papers 163, Cowles Foundation for Research in Economics, Yale University.
  15. Cass, David, 1972. "On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization," Journal of Economic Theory, Elsevier, vol. 4(2), pages 200-223, April.
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