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Millian efficiency with endogenous fertility

  • Mikel Perez-Nievas

    (Universidade de Santiago Compostela)

  • Eduardo L. Gimenez

    (Universidade de Vigo)

  • J. Ignacio Conde-Ruiz

    (FEDEA)

Should governments implement policies that affect fertility decisions on efficiency grounds? In this paper, we adress this question by developing 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, and.we present a condition to identify equilibrium allocations as dynamically efficient that exclusively uses the sequence of prices associated to such decentralized equilibria. Finally, we use the results obtained to evaluate the performance of two fundamental institutions of the welfare state, such as public education and social security, in economies with endogenous fertility.

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Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 338.

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Date of creation: 2007
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Handle: RePEc:red:sed007:338
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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