Complements versus substitutes and trends in fertility choice in dynastic models

Jones, Larry E. and Schoonbroodt, Alice (2010) Complements versus substitutes and trends in fertility choice in dynastic models. International Economic Review.

Abstract

Demographers have long emphasized decreased mortality and 'economic development' as the main contributors generating the demographic transition (DT). In economics, the Barro-Becker (BB) model of fertility choice, though simple and intuitive, has not been successful at reproducing changes in fertility in line with the demography literature---at least in its original formulation. We show that this is due to an implicit assumption that number and welfare of children are complements, a byproduct of high intertemporal elasticity of substitution (IES) typically assumed in the fertility literature.

Not only is this assumption not necessary, but qualitative and quantitative properties of the model in terms of fertility choice change dramatically when substitutability and low IES are assumed. These results do not require non-homotheticities or any other major changes to the basic BB model but emphasize productivity growth rates as opposed to income levels to interpret 'economic development.'

We find that with an IES of one-third, model predictions of changes in fertility amount to two-thirds of those observed in U.S. data since 1800. The increase in productivity growth accounts for 90 percent of the predicted fall in fertility before 1880; and changes in mortality account for 90 percent of the predicted fall from 1880 to 1990.

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