"The Two Transitions, Demographic and Industrial "
with Aubhik Khan and Larry E. Jones
"Mortality, Fertility, and Intergenerational Transfers: A Long Run Perspective"
with Larry E. Jones
From Busts to Booms in Babies and Goodies NEW!
with Larry E. Jones and Alice Schoonbroodt
After the fall in fertility during the Demographic Transition, many developed countries experienced a baby bust, followed by the Baby Boom and subsequently a return to low fertility. Received wisdom from the Demography literature links these large fluctuations in fertility to the series of Economics 'shocks' that occurred with similar timing - the Great Depression, WWII, the economic expansion that followed and then the productivity slow down of the 1970's. To economists, this line of argument suggests a more general link between fluctuations in output and fertility decisions, of which the Baby Bust-Boom-Bust event (BBB) is a particularly stark example. Surprisingly, little has been done to formally address this link in a stochastic model of optimal fertility choice. This paper is an attempt to formalize the conventional wisdom in simple versions of stochastic growth models with endogenous fertility. First, we develop initial tools to address the effects of "temporary" shocks to productivity on fertility choices. Second, we analyze calibrated versions of these models. We can then answer several qualitative and quantitative questions: Under what conditions is fertility pro- or countercyclical? How large are these effects and how is this related to the 'persistence' of the shocks? How much of the BBB can be accounted for by the kinds of medium run productivityfluctuations described as computed from the data?
Three Equations Generating an Industrial Revolution? NEW!
With Aubhik Khan and Larry E. Jones
Public Education and Capital Accumulation NEW!
Research in Economics 59 (2005), 85-109
The data show that an increase in government provided old-age pensions is strongly correlated with a reduction in fertility. What type of model is consistent with this finding? We explore this question using two models of fertility, the one by Barro and Becker (1989), and the one inspired by Caldwell and developed by Boldrin and Jones (2002). In the Barro and Becker model parents have children because they perceive their children's lives as a continuation of their own. In the Boldrin and Jones' framework parents procreate because the children care about their old parents' utility, and thus provide them with old age transfers. The effect of increases in government provided pensions on fertility in the Barro and Becker model is very small, and inconsistent with the empirical findings. The effect on fertility in the Boldrin and Jones model is sizeable and accounts for between 55 and 65\% of the observed Europe-US fertility differences both across countries and across time and over 80\% of the observed variation seen in a broad cross-section of countries. Another key factor affecting fertility the Boldrin and Jones model is the access to capital markets, which can account for the other half of the observed change in fertility in developed countries over the last 70 years.
Mortality, Fertility and Saving in a Malthusian Economy
with Larry E. Jones
Review of Economic Dynamics 5 (2002), 775-814.
In this paper, we develop and analyze a simple model of fertility choice by utility maximizing households. Following the work of Barro and Becker, our model is based on an explicit notion of intergenerational external effects. In contrast to the Barro and Becker model however, we assume that the external effects run from children to parents. That is, parents consumption when old directly enters the utility function of the children. This gives rise to a fundamentally different reason for bearing of children. This is that parents expect to be cared for, at least partially, by their children in their old age when their labor productivity is low. Thus, children are an investment in own old age consumption from the point of view of parents. We take infant mortality rates as the key exogenous variable and endogeneize the size of the transfer from children to parents by linking it to the endogenous savings and fertility choice of the parents. This generates a simple dynamic model of economic growth and of fertility transition that performs better, qualitatively and quantitatively, than previous models of which we are aware.
We study a class of two-sector endogenous growth models in the presence of a positive external effect. The class of models exhibits global indeterminacy of equilibria. The qualitative properties of a set of examples are analyzed by means of analytical and numerical methods. We also construct robust examples of both topological and ergodic chaos.
Stock market booms are often followed by dramatic falls. This is often viewed as a bad thing, and evidence of investor irrationality. To explain this from a fundamentalist point of view requires an asymmetry in the underlying technology shocks driving the market. Here we argue that a straightforward model of technological progress leads to clear asymmetries and these asymmetries may be also the source of growth cycles. In a simple optimization model with a representative consumer, if traders are not too risk averse, we show that the stock market will generally rise, punctuated by occasional dramatic falls. This is first best. Surprisingly, if consumers are very risk averse, the gradual rise in the market will be broken by dramatic increases in stock prices on the occasion of bad news. Bad news do not correspond to a contraction of the production possibility set but, rather, to a decrease in the rate at it expands. For this reason, this economy provides a model of endogenous growth in which the timing of recoveries and recessions is dictated by the pace at which technological innovations are adopted.
Growth Under Perfect Competition
with David K. Levine
mimeo. First version: October 1997; this version June 2005.
We construct an abstract, dynamic general equilibrium model of innovation and growth, in the spirit of Schumpeter's Theory of Theory of Economic Development. Despite the existence of infinitely many commodities and activities, the use of which may vary over time, we give a characterization of equilibrium using the standard first and second welfare theorems, and a standard transversality condition. We consider a series of examples characterizing the dynamic properties of equilibria and show that many results discussed in the "endogenous growth" literature can be obtained as special cases of the model we propose. Next we study the role of initial conditions in the process of economic growth and show that most kinds of "path dependence" discussed in the literature may arise under conditions of perfect competition and in the absence of any external effect.