Fertility and Development

Microeconomic Household Theory of Fertility

Demand for Children in Developing Countries

First two or three as consumer goods
Additional children as investment goods:
Benefits: Work on family farm, Old age security
motivation
Costs: Mothers time, education expenses
Trade-off between quality and quantity

Fertility and missing markets
Children are substitutes for various missing markets
especially social security in the old age

Developed countries: Social security fund or employer
subsidized retirement plan along with medical insurance

In developing countries, many of these institutions are
totally missing and the available institutions are only for
formally employed (not for agricultural and urban informal
sectors)
Costs of Children in the poor countries

Because children are an investment rather than a
consumption good the expected return of the
investment is given by child labor and financial
support for parents in old age

Parents have children up to the point at which their
marginal economic benefit is equal to marginal cost
Microeconomic Theory of Fertility
BACKGROUND
Uses conventional theory of consumer behaviour
An individual tries to maximize satisfaction
Subject to income constraint and relative prices of all
goods
So children are considered as a special kind of
consumption good
Fertility becomes a rational economic response to
demand for children relative to other goods



Microeconomic Theory of Fertility


Where
C
d
is the demand for surviving children
Y is the level of household income
P
c
is the net price of children
P
x
is price of all other goods
t
x
is the tastes for goods relative to children



3


n x t P P Y f C x x c d ,..., 1 ), , , , ( = =
Under neoclassical conditions, we would expect:

The higher the household income, the greater the demand for children

The higher the net price of children, the lower the quantity demanded.

The higher the prices of all other goods relative to children, the
greater the quantity of children demanded.

The greater the strength of tastes for goods relative to children, the
fewer children demanded.


n x t P P Y f C x x c d ,..., 1 ), , , , ( = =



n x t P P Y f C x x c d ,..., 1 ), , , , ( = =
0 >


Y
Cd
0 <


c
d
P
C
0 >


x
d
P
C
0 <


x
d
t
C
Microeconomic Theory of Fertility
Household desires for children are expressed in
terms of an indifference map

Representing the subjective degree of satisfaction
derived by the parents
For all possible combinations of commodities and
children

A locus of commodity-child combinations that yield
the same amount of satisfaction
Microeconomic Theory of Fertility
Households ability to purchase alternative
combinations is shown by the budget line

The steeper the slope of the budget line, the higher
the price of children relative to goods

According to the demand-based theory, the
household chooses one combination of goods and
children that maximizes family satisfaction








Microeconomic Theory of Fertility: An Illustration
Microeconomic Theory of Fertility: An Illustration
A rise in family income enables the household to
attain a higher level of satisfaction
By consuming more of both commodities and
children
Assuming children are a normal good

An increase in the price of children relative to other
goods will cause households to substitute
commodities for children

Microeconomic Theory of Fertility: An Illustration
If there is a simultaneous increase in household
income and net child price:
There will be both an outward shift and downward
rotation of the budget line
Motivates households to have fewer children while
still improving their welfare
Higher levels of living for low-income families
A relative increase in the children
Household theory of fertility
Family size is a decision taken at the microeconomic
level by households based on a rational economic
decision on demand for children

Income effect: Higher income allows for larger family
size

Substitution effect: Higher cost of children implies
smaller family size

Other theories

Implications
1. Childbearing decisions impose external codes
outside the family

2. Prices of key commodities or services related to
childbearing and child rearing may be inefficient

3. Parents may not be fully informed about or may not
have reasonable access to adequate means for
controlling births
Implications
Implications. Fertility lower if

Raise womens education, role, and status
More female non-agricultural wage employment
Rise in family income levels
Reduction in infant mortality
Development of old-age and social security
Expanded schooling opportunities

Why Children are beneficial in Developing
Countries ?
In sum
1.Infant/child mortality remains high
2.Sources of child labor & remittance income
later on
3.Social security/safety net for elderly poor
4.Low child-rearing cost, esp. low opportunity
cost of womens time