Property rights and efficiency in OLG models with endogenous fertility


Schoonbroodt, Alice and Tertilt, Michele (2010) Property rights and efficiency in OLG models with endogenous fertility , Southampton, GB University of Southampton 42pp. (Discussion Papers in Economics and Econometrics, 1020).

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Description/Abstract

Is there an economic rationale for pronatalist policies? We propose and analyze a particular market failure that leads to inefficiently low fertility in equilibrium. The friction is caused by the lack of ownership of children: if parents have no claim on their children’s income, the private benefit from producing a child can be smaller than the social benefit. We analyze an overlapping-generations model with fertility choice and parental altruism. Ownership is modeled as a minimum constraint on transfers from parents to children. Using the efficiency concepts proposed in Golosov, Jones, and Tertilt (2007), we find that whenever the transfer floor is binding, fertility choices are inefficient. Second, we show that the usual conditions for efficiency are not sufficient in this context. Third, in contrast to settings with exogenous fertility, a PAYG social security system cannot be used to implement efficient allocations. To achieve an efficient outcome, government transfers need to be tied to fertility choice.

Item Type: Monograph (Working Paper)
ISSNs: 0966-4246 (electronic)
Keywords: overlapping generations, fertility, efficiency
Subjects:

ePrint ID: 169601
Date :
Date Event
December 2010Published
Date Deposited: 17 Dec 2010 12:56
Last Modified: 18 Apr 2017 03:31
Further Information:Google Scholar
URI: http://eprints.soton.ac.uk/id/eprint/169601

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