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A Contribution to the Economic Theory of Fertility

  • Cordoba, Juan Carlos
  • Ripoll, Marla

The evidence strongly suggests a robust negative relationship between income and fertility, and a positive relationship between income and longevity. This is puzzling for standard dynamic models. For instance, altruistic models that use the most standard preferences in macro --time separable CRRA with low elasticity of intertemporal substitution (EIS)-- correctly predict a positive longevity-income relationship for rich individuals, but also predict a positive fertility-income relationship, contrary to the data. We show that a non-separable formulation of preferences that allows for a low EIS but a high "elasticity of intergenerational substitution" (EGS) can simultaneously account for the evidence of declining demand for children and increasing demand for longevity as income increases. The model with a single elasticity cannot account for both. Our results suggests a major role for a new parameter in macro, the EGS. While the EIS mostly influences short-term economic decisions, the EGS influences mostly long-term economic choices.

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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p13899-2011-06-20.pdf
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File URL: http://www.econ.iastate.edu/~cordoba/cetf.pdf
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 33899.

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Date of creation: 20 Jun 2011
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Handle: RePEc:isu:genres:33899
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Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070

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