Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/27885.html
   My bibliography  Save this paper

Fertility and Consumption when Having a Child is a Risky Investment

Author

Listed:
  • Gete, Pedro
  • Porchia, Paolo
Abstract
In this paper we study a new factor that matters for fertility and consumption decisions: the risks associated with having and raising a child. We analyze a real options model with incomplete markets to explicitly model both children as a risky investment and the parental option to time fertility. We focus on CRRA preferences and uninsurable shocks to future parental income and to the costs of raising a child. We obtain several results that are new relative to the standard Beckerian fertility framework where children are deterministic goods: i) Independently of wealth, higher child cost volatility diminishes fertility. ii) Consumption is decreasing in higher cost volatility but the slope flattens as wealth increases. iii) Wealth alters the way in which the agent's risk tolerance impacts the fertility and consumption decisions. For low wealth levels, risk aversion speeds up fertility and lowers consumption with children serving as an utility insurance mechanism. iv) Fertility is increasing in the correlation between income and child cost shocks. v) The sign of this correlation determines if higher income volatility speeds up or delays fertility. vi) Fertility is U-shaped in the income over wealth ratio. Finally, we use regression analysis to provide empirical support for the theoretical results.

Suggested Citation

  • Gete, Pedro & Porchia, Paolo, 2010. "Fertility and Consumption when Having a Child is a Risky Investment," MPRA Paper 27885, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:27885
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/27885/1/MPRA_paper_27885.pdf
    File Function: original version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/34054/1/MPRA_paper_34054.pdf
    File Function: revised version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rajeev Dehejia & Adriana Lleras-Muney, 2004. "Booms, Busts, and Babies' Health," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(3), pages 1091-1130.
    2. Gary S. Becker & Kevin M. Murphy & Robert Tamura, 1994. "Human Capital, Fertility, and Economic Growth," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 323-350, National Bureau of Economic Research, Inc.
    3. Sumon Kumar Bhaumik & Jeffrey B. Nugent, 2005. "Does Economic Uncertainty Affect the Decision to Bear Children? Evidence from East and West Germany," William Davidson Institute Working Papers Series wp788, William Davidson Institute at the University of Michigan.
    4. repec:pri:cheawb:adriana_booms.pdf is not listed on IDEAS
    5. Larry E. Jones & Alice Schoonbroodt & Michèle Tertilt, 2010. "Fertility Theories: Can They Explain the Negative Fertility-Income Relationship?," NBER Chapters, in: Demography and the Economy, pages 43-100, National Bureau of Economic Research, Inc.
    6. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
    7. Pedro Mira & Namkee Ahn, 2002. "A note on the changing relationship between fertility and female employment rates in developed countries," Journal of Population Economics, Springer;European Society for Population Economics, vol. 15(4), pages 667-682.
    8. Terry, Stephen J. & Knotek II, Edward S., 2011. "Markov-chain approximations of vector autoregressions: Application of general multivariate-normal integration techniques," Economics Letters, Elsevier, vol. 110(1), pages 4-6, January.
    9. Alicia Adsera, 2006. "An Economic Analysis of the Gap Between Desired and Actual Fertility: The Case of Spain," Review of Economics of the Household, Springer, vol. 4(1), pages 75-95, March.
    10. Emanuela Cardia & Serena Ng, 2003. "Intergenerational Time Transfers and Childcare," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 431-454, April.
    11. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
    12. Adsera, Alicia & Menendez, Alicia, 2009. "Fertility Changes in Latin America in the Context of Economic Uncertainty," IZA Discussion Papers 4019, Institute of Labor Economics (IZA).
    13. Juan Carlos Conesa, 2002. "Educational attainment and timing of fertility decisions," Working Papers in Economics 78, Universitat de Barcelona. Espai de Recerca en Economia.
    14. Robert Tamura, 2000. "Growth, fertility and human capital: A survey," Spanish Economic Review, Springer;Spanish Economic Association, vol. 2(3), pages 183-229.
    15. Alicia Adsera, 2005. "Vanishing Children: From High Unemployment to Low Fertility in Developed Countries," American Economic Review, American Economic Association, vol. 95(2), pages 189-193, May.
    16. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    17. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
    18. José María Da Rocha & Luisa Fuster, 2006. "Why Are Fertility Rates And Female Employment Ratios Positively Correlated Across O.E.C.D. Countries?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1187-1222, November.
    19. Caballero, Ricardo J, 1991. "Earnings Uncertainty and Aggregate Wealth Accumulation," American Economic Review, American Economic Association, vol. 81(4), pages 859-871, September.
    20. Alícia Adserà, 2011. "The interplay of employment uncertainty and education in explaining second births in Europe," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 25(16), pages 513-544.
    21. Gary S. Becker, 1960. "An Economic Analysis of Fertility," NBER Chapters, in: Demographic and Economic Change in Developed Countries, pages 209-240, National Bureau of Economic Research, Inc.
    22. Michaela R. Kreyenfeld, 2005. "Economic uncertainty and fertility postponement: evidence from German panel data," MPIDR Working Papers WP-2005-034, Max Planck Institute for Demographic Research, Rostock, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Ruixin, 2015. "Essays on development economics and public economics," Other publications TiSEM e1779514-5b71-4726-925b-2, Tilburg University, School of Economics and Management.
    2. Janina Reinkowski, 2014. "Empirical Essays in the Economics of Ageing and the Economics of Innovation," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 53.
    3. Janina Reinkowski, 2013. "Should We Care that They Care? Grandchild Care and Its Impact on Grandparent Health," ifo Working Paper Series 165, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Paolo Porchia & Pedro Gete, 2011. "Fertility and Consumption when Having a Child is a Risky Investment," 2011 Meeting Papers 563, Society for Economic Dynamics.
    2. Andersen, Signe Hald & Özcan, Berkay, 2021. "The effects of unemployment on fertility," LSE Research Online Documents on Economics 109007, London School of Economics and Political Science, LSE Library.
    3. Emilia Bono & Andrea Weber & Rudolf Winter-Ebmer, 2015. "Fertility and economic instability: the role of unemployment and job displacement," Journal of Population Economics, Springer;European Society for Population Economics, vol. 28(2), pages 463-478, April.
    4. Alicia Adsera, 2011. "Where Are the Babies? Labor Market Conditions and Fertility in Europe [Où sont les bébés ? Conditions du marché du travail et fécondité en Europe]," European Journal of Population, Springer;European Association for Population Studies, vol. 27(1), pages 1-32, February.
    5. Do, Quy-Toan & Levchenko, Andrei A. & Raddatz, Claudio, 2016. "Comparative advantage, international trade, and fertility," Journal of Development Economics, Elsevier, vol. 119(C), pages 48-66.
    6. Giammarco Alderotti & Daniele Vignoli & Michela Baccini & Anna Matysiak, 2019. "Employment Uncertainty and Fertility: A Network Meta-Analysis of European Research Findings," Econometrics Working Papers Archive 2019_06, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
    7. José María Da Rocha & Luisa Fuster, 2003. "Why are Fertility and Female Participation Rates Positively Correlated across OECD countries?," Working Papers 72, Barcelona School of Economics.
    8. Hans Fehr & Daniela Ujhelyiova, 2013. "Fertility, Female Labor Supply, and Family Policy," German Economic Review, Verein für Socialpolitik, vol. 14(2), pages 138-165, May.
    9. Angela Luci-Greulich & Olivier Thévenon, 2014. "Does Economic Advancement ‘Cause’ a Re-increase in Fertility? An Empirical Analysis for OECD Countries (1960–2007)," European Journal of Population, Springer;European Association for Population Studies, vol. 30(2), pages 187-221, May.
    10. repec:hal:spmain:info:hdl:2441/1a68qg411o9bg9jp7fhgh60n5p is not listed on IDEAS
    11. Wolfgang Auer, 2018. "Empirical Essays on the Socioeconomic Consequences of Economic Uncertainty," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 79.
    12. Andreas Steinhauer, 2018. "Working Moms, Childlessness, and Female Identity," Working Papers hal-03475468, HAL.
    13. repec:spo:wpmain:info:hdl:2441/1a68qg411o9bg9jp7fhgh60n5p is not listed on IDEAS
    14. Sekyu Choi, 2017. "Fertility Risk In The Life Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(1), pages 237-259, February.
    15. Steinhauer, Andreas, 2018. "Working Moms, Childlessness, and Female Identity," CEPR Discussion Papers 12929, C.E.P.R. Discussion Papers.
    16. Aksoy, Cevat Giray, 2014. "Are Fertility Responses to Local Unemployment Shocks Homogenous Across Social Strata? Evidence from England, 1994 to 2010," MPRA Paper 58292, University Library of Munich, Germany.
    17. Coskun, Sena & Dalgic, Husnu C., 2024. "The emergence of procyclical fertility: The role of breadwinner women," Journal of Monetary Economics, Elsevier, vol. 142(C).
    18. Emilia Del Bono & Andrea Weber & Rudolf Winter-Ebmer, 2012. "Clash Of Career And Family: Fertility Decisions After Job Displacement," Journal of the European Economic Association, European Economic Association, vol. 10(4), pages 659-683, August.
    19. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta†Eksten & Stephen J. Terry, 2018. "Really Uncertain Business Cycles," Econometrica, Econometric Society, vol. 86(3), pages 1031-1065, May.
    20. Nicoletta Balbo & Francesco C. Billari & Melinda Mills, 2013. "Fertility in Advanced Societies: A Review of Research," European Journal of Population, Springer;European Association for Population Studies, vol. 29(1), pages 1-38, February.
    21. Jakob Madsen & Holger Strulik, 2023. "Testing unified growth theory: Technological progress and the child quantity‐quality tradeoff," Quantitative Economics, Econometric Society, vol. 14(1), pages 235-275, January.
    22. Emi Nakamura & Jón Steinsson, 2010. "Monetary Non-neutrality in a Multisector Menu Cost Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 961-1013.

    More about this item

    Keywords

    Fertility; Consumption; Real Options; Incomplete Markets;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • A10 - General Economics and Teaching - - General Economics - - - General
    • G00 - Financial Economics - - General - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:27885. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.