Property rights and efficiency in OLG models with endogenous fertility

Schoonbroodt, Alice; Tertilt, Michèle

doi:10.1016/j.jet.2013.09.016

Cited by 35 publications

(40 citation statements)

References 43 publications

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“…This link suggests that both approaches may result in similar predictions when constraints to intergenerational transfers are properly considered. Schoonbroodt and Tertilt (2014) arrive at a similar conclusion in their analysis of efficiency.…”

supporting

confidence: 59%

Intergenerational Transfers and the Fertility–Income Relationship

Córdoba

Ripoll

2015

The Economic Journal

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Extensive evidence from cross-sectional data reveals a robust negative relationship between family income and fertility. This paper argues that constraints to intergenerational transfers are crucial for understanding this relationship. If parents could legally impose debt obligations on their children as a way to recover the costs incurred in raising them, then fertility would be independent of parental income. In this case, if the present value of a child's future income exceeds the cost of raising the child, as the evidence suggests is the case, parents would have incentives to raise as many children as possible in order to maximize rents. A relationship between fertility and income arises when parents are unable to leave debts behind either because of legal, enforcement, or moral constraints. We also derive the conditions under which the fertility-income relationship is negative. Notably, an intergenerational elasticity of substitution larger than one is required. In this case, parental consumption is a good substitute for children's consumption making it optimal for income rich parents to have fewer children. Evidence from cross-sectional data reveals a negative relationship between family income and fertility. This paper argues that constraints to intergenerational transfers are crucial for understanding this relationship. If parents could legally impose debt obligations on their children to recover the costs incurred in raising them, then fertility would be independent of parental income. A relationship between fertility and income arises when parents are unable to leave debts because of legal, enforcement, or moral constraints. This relationship is negative when the intergenerational elasticity of substitution is larger than one, case in which parental consumption is a good substitute for children's consumption.There is extensive empirical evidence documenting a negative relationship between fertility and income. 1 For example, using cross-sectional individual data for the US, Becker (1960) …nds a negative fertility-income relationship in the 1910, 1940 and 1950 Censuses, and in the Indianapolis survey for the 1900s. More recently, Jones and Tertilt (2008) use US Census data as far back as the 1826 cohort to estimate an income elasticity of fertility of about 0:38. Their analysis is distinct in that they construct a more re…ned measure of lifetime income by using occupational income and education. Lifetime income and fertility are measured for several cross-sections of …ve-year birth cohorts from 1826-1830 to 1956-1960. They conclude that most of the observed fertility decline in the US can be explained by the negative fertility-income relationship estimated for each crosssection, together with the outward shift of the income distribution over time. The estimated income elasticity is robust to the inclusion of additional controls such as child mortality and the education i.e., the cost of raising the child is below the present value of the child's future income.Available data discussed in Section...

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supporting

confidence: 59%

Intergenerational Transfers and the Fertility–Income Relationship

Córdoba

Ripoll

2015

The Economic Journal

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“…Golosov, Jones, and Tertilt (2007) propose two new notions-A-and P-efficiencyand show how they can be used in standard fertility models. Schoonbroodt and Tertilt (2014) use the concepts to explore under what conditions fertility choice may be inefficiently low and hence pronatalist policies may be desired.…”

Section: Resultsmentioning

confidence: 99%

Families in Macroeconomics

Doepke

Tertilt

2016

Handbook of Macroeconomics

105

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“…A first direction would be to study the efficiency properties of equilibria. Schoonbroodt and Tertilt () have shown, in an environment with dynastic altruism, that an equilibrium in which the nonnegativity constraints on transfers are binding cannot be

scriptA

‐efficient or, using our distinction,

{scriptA}^{scriptO}

‐efficient. Yet, in their setting, the equilibrium that arises from the interaction of markets and families is symmetric.…”

Section: Discussionmentioning

confidence: 84%

“…Even if the dynasty head is altruistic toward her descendants, both

{scriptA}^{scriptO}

‐ and

{scriptA}^{scriptD}

‐efficiency may be incompatible with the existence of property rights on the resources to be allocated in a given economy, as Schoonbroodt and Tertilt () have observed. To see why, suppose we slightly modify the model described above in such a way that the amount of the consumption good

k_{1}^{o}

accumulated as capital by the dynasty head may be negative, in which case

d_{1}^{0} = - k_{1}^{o} R

represents the dynasty head's debt in period 1.…”

Section: Efficient Fertility Choices In a Simple Two‐period Examplementioning

confidence: 99%

“…Examples of the first type of model—although they both restrict their analysis to symmetric allocations—are given in the pioneering work by Razin and Ben‐Zion (), for whom

U true2.4ex2.4ex(x_{t}, u_{t + 1}^{D} true2.4ex2.4ex) = U^{D} true2.4ex2.4ex(x_{t}, u_{t + 1}^{D} true2.4ex2.4ex) = v true2.4ex2.4ex(c_{t}^{m} true2.4ex2.4ex) + γ false(n_{t + 1} false) + β u_{t + 1}^{D},

as well as the model developed in Barro and Becker (), for whom

U true2.4ex2.4ex(x_{t}, u_{t + 1}^{D} true2.4ex2.4ex) = U^{D} true2.4ex2.4ex(x_{t}, u_{t + 1}^{D} true2.4ex2.4ex) = v true2.4ex2.4ex(c_{t}^{m} true2.4ex2.4ex) + α false(n_{t + 1} false) n_{t + 1} u_{t + 1}^{D},

with

α false(n_{t + 1} false) = α n_{t + 1}^{- normalϵ}

being the endogenous discount rate. Finally, an example of a model with dynastic altruism and truly overlapping generations is given by Schoonbroodt and Tertilt (), for whom