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Fertility and Consumption when Having a Child is a Risky Investment

This paper studies children as a risky asset associated to an investment option. Children provide utility but have a stochastic maintenance cost. We obtain several new results relative to models where children are deterministic goods, among which: i) Higher child risks diminish fertility and consumption. ii) Risk aversion speeds up fertility as households use the safe utility derived from a child as insurance against fluctuations in consumption. iii) Fertility is increasing in the correlation between income and child cost shocks. The household is reluctant to have children when positive cost shocks come together with bad income shocks. The opposite result happens when children hedge income shocks. iv) The sign of the correlation determines whether higher income volatility speeds up or delays fertility.

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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~11-11-03.

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Date of creation: 03 Jan 2011
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Handle: RePEc:geo:guwopa:gueconwpa~11-11-03
Contact details of provider: Postal: Georgetown University Department of Economics Washington, DC 20057-1036
Phone: 202-687-6074
Fax: 202-687-6102
Web page: http://econ.georgetown.edu/
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Order Information: Postal: Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
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  1. Hugonnier, Julien & Morellec, Erwan, 2007. "Corporate control and real investment in incomplete markets," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1781-1800, May.
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  3. Veloso, F.A., 2000. "Wealth Composition, Endogenous Fertility and the Dynamics of Income Inequality," Insper Working Papers wpe_7, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
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  12. Gary S. Becker, 1960. "An Economic Analysis of Fertility," NBER Chapters, in: Demographic and Economic Change in Developed Countries, pages 209-240 National Bureau of Economic Research, Inc.
  13. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
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  15. Michaela Kreyenfeld, 2005. "Economic uncertainty and fertility postponement: evidence from German panel data," MPIDR Working Papers WP-2005-034, Max Planck Institute for Demographic Research, Rostock, Germany.
  16. Adsera, Alicia & Menendez, Alicia, 2009. "Fertility Changes in Latin America in the Context of Economic Uncertainty," IZA Discussion Papers 4019, Institute for the Study of Labor (IZA).
  17. Hui Chen & Jianjun Miao & Neng Wang, . "Entrepreneurial Finance and Non-diversifiable Risk," Boston University - Department of Economics - Working Papers Series wp2009-018, Boston University - Department of Economics.
  18. Michael Kremer & Daniel Chen, 2000. "Income-distribution Dynamics with Endogenous Fertility," NBER Working Papers 7530, National Bureau of Economic Research, Inc.
  19. Kogan, Leonid & Uppal, Raman, 2002. "Risk Aversion and Optimal Portfolio Policies in Partial and General Equilibrium Economies," CEPR Discussion Papers 3306, C.E.P.R. Discussion Papers.
  20. Juan Carlos Conesa, 2002. "Educational attainment and timing of fertility decisions," Working Papers in Economics 78, Universitat de Barcelona. Espai de Recerca en Economia.
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  22. Caballero, Ricardo J, 1991. "Earnings Uncertainty and Aggregate Wealth Accumulation," American Economic Review, American Economic Association, vol. 81(4), pages 859-71, September.
  23. Emanuela Cardia & Serena Ng, 2003. "Intergenerational Time Transfers and Childcare," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 431-454, April.
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