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Habit Formation, Dynastic Altruism, and Population Dynamics

We study the general equilibrium properties of two growth models with overlapping generations, habit formation and endogenous fertility. In the neoclassical model, habits modify the economy's growth rate and generate transitional dynamics in fertility; station- ary income per capita is associated with either increasing or decreasing population and output, depending on the strength of habits. In the AK specification, growing population and increasing consumption per capita require that the habit coefficient lie within definite boundaries; outside the critical interval, positive growth is associated with either declining consumption due to overcrowding, or extinction paths with declining population. In both frameworks, habits reduce fertility: the trade-off between second-period consumption and spending for bequests prompts agents to decrease fertility in order to make parental altru- ism less costly. This mechanism suggests that status-dependent preferences may explain part of the decline in fertility rates observed in most developed economies.

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Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 07/77.

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Length: 34 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:eth:wpswif:07-77
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  1. Jellal, Mohamed & wolff, François charles, 2002. "Insecure old-age security," MPRA Paper 38644, University Library of Munich, Germany.
  2. Osborn, Denise R, 1988. "Seasonality and Habit Persistence in a Life Cycle Model of Consumptio n," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(4), pages 255-66, October-D.
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  4. Xavier Mateos-Planas, 2002. "The Demographic Transition in Europe: A Neoclassical Dynastic Approach," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 646-680, July.
  5. Alessandra Guariglia & Mariachristina Rossi, 1999. "Consumption, habit formation and precautionary saving: Evidence from the UK," Economics Discussion Papers 502, University of Essex, Department of Economics.
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  7. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2004. "Aspirations, Habit Formation, and Bequest Motive," UFAE and IAE Working Papers 641.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  8. Blackburn, Keith & Cipriani, Giam Pietro, 2005. "Intergenerational transfers and demographic transition," Journal of Development Economics, Elsevier, vol. 78(1), pages 191-214, October.
  9. de la Croix, David & Michel, Philippe, 1997. "Optimal growth when tastes are inherited," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Jun 1997.
  10. Emmanuel Thibault, 2000. "Existence of equilibrium in an OLG model with production and altruistic preferences," Economic Theory, Springer, vol. 15(3), pages 709-715.
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  13. Matthias Doepke, 2002. "Child Mortality and Fertility Decline: Does the Barro-Becker Model Fit the Facts?," UCLA Economics Working Papers 824, UCLA Department of Economics.
  14. Nishimura, Kazuo & Zhang, Junsen, 1995. "Sustainable Plans of Social Security with Endogenous Fertility," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 182-94, January.
  15. Carroll, Christopher D & Overland, Jody & Weil, David N, 1997. " Comparison Utility in a Growth Model," Journal of Economic Growth, Springer, vol. 2(4), pages 339-67, December.
  16. Oded Galor, 2004. "From Stagnation to Growth: Unified Growth Theory," GE, Growth, Math methods 0409003, EconWPA.
  17. Matthias Doepke & Fabrizio Zilibotti, 2005. "The macroeconomics of child labor regulation," Staff Report 354, Federal Reserve Bank of Minneapolis.
  18. Alessandra Guariglia, 2002. "Consumption, habit formation, and precautionary saving: evidence from the British Household Panel Survey," Oxford Economic Papers, Oxford University Press, vol. 54(1), pages 1-19, January.
  19. Jeffrey C. Fuhrer & Michael W. Klein, 2006. "Risky Habits: on Risk Sharing, Habit Formation, and the Interpretation of International Consumption Correlations," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 722-740, 09.
  20. Galor, Oded & Weil, David, 1995. "The Gender Gap, Fertility and Growth," CEPR Discussion Papers 1157, C.E.P.R. Discussion Papers.
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  26. Sah, R.K., 1989. "The Effects Of Mortality Changes On Fertility Choice And Individual Welfare: Some Theoretical Predictions," Papers 599, Yale - Economic Growth Center.
  27. repec:oup:restud:v:72:y:2005:i:1:p:21-42 is not listed on IDEAS
  28. Ben-Porath, Yoram, 1976. "Fertility Response to Child Mortality: Micro Data from Israel," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S163-78, August.
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  30. Hans-Peter Kohler & Francesco C. Billari & José Antonio Ortega, 2002. "The Emergence of Lowest-Low Fertility in Europe During the 1990s," Population and Development Review, The Population Council, Inc., vol. 28(4), pages 641-680.
  31. Eswaran, Mukesh, 1998. "One Explanation for the Demographic Transition in Developing Countries," Oxford Economic Papers, Oxford University Press, vol. 50(2), pages 237-65, April.
  32. Nils-Petter Lagerlöf, 2006. "The Galor-Weil Model Revisited: A Quantitative Exercise," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 116-142, January.
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