Endogenous fertility and human capital investment
The main objective of this contribution is to rationalize three stylized facts. The comparison of the first two observations constitutes a "puzzle" that we try to rationalize by bringing into the picture the third stylized fact. (i) It is well established that fertility choice and infant - and child survival rate are often negatively correlated. (ii) Data indicate that there is a positive correlation between fertility and infant and child survival probability for countries having a low per capita income in 1965. (iii) The third stylized fact refers to another aspect of parental decisions, that of investment in education: child survival probability and investment in education move together. We try to model and rationalize these observations by discriminating between two kinds of parental investments: health care and education. We argue on the basis of an overlapping - generation old age security model of discrete fertility choice, in which each agent lives for three periods if she survives the childhood. (a) In a first model, we focus on the relationship between investment in health care and fertility choice. The model predicts the second stylized fact for low income countries. (b) In a second model, we take into account the relationship between investment in education and children's future income. An exogenous increase of the rate of survival implies then a decrease in the equilibrium level of the fertility variable and an increase in the equilibrium level of investment in education. The model replicates the first stylized fact. The presence of a discrete variable (fertility) entails jumps in equilibrium levels of a - priori continuous variables (education and health care), when dealing with comparative statics. We develop the appropriate analytical method for the problem, what we call "Saltus Optimization." We check that the predictions are not modified when parent's altruism is taken into account. Conventionally the literature considers utility maximization, such that it depends on the number of expected children. This approach is not consistent with the utility maximization under uncertainty. We demonstrate that the first stylized fact of the quantity-quality trade-off can be proven even in this, generally used misspecified framework, under the assumption that the fertility choice is discrete.
Dalko, Viktoria, "Endogenous fertility and human capital investment" (1992). Dissertations available from ProQuest. AAI9235128.