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HABIT FORMATION, DYNASTIC ALTRUISM, AND POPULATION DYNAMICS

Published online by Cambridge University Press:  07 April 2010

Andreas Schäfer  and
Simone Valente
Andreas Schäfer
Affiliation:
University of Leipzig
Simone Valente*
Affiliation:
ETH Zürich
*
Address correspondence to: Dr. Simone Valente, CER-ETH, ZUE F-13, Zürichbergstrasse 18, CH-8032 Zürich, Switzerland; e-mail: svalente@ethz.ch.
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Abstract

We study the general equilibrium properties of two growth models with overlapping generations, habit formation, and endogenous fertility. In the neoclassical model, habits modify the economy's growth rate and generate transitional dynamics in fertility; stationary income per capita is associated with either increasing or decreasing population and output, depending on the strength of habits. In the AK specification, growing population and increasing consumption per capita require that the habit coefficient lie within definite boundaries; outside the critical interval, positive growth is associated with either declining consumption due to overcrowding, or extinction paths with declining population. In both frameworks, habits reduce fertility: the trade-off between second-period consumption and spending for bequests prompts agents to decrease fertility in order to make parental altruism less costly. This mechanism suggests that status-dependent preferences may explain part of the decline in fertility rates observed in most developed economies.

Keywords

Economic GrowthEndogenous FertilityHabit FormationIntergenerational Altruism
Type
Articles
Information
Macroeconomic Dynamics , Volume 15 , Issue 3 , June 2011 , pp. 365 - 397
Copyright
Copyright © Cambridge University Press 2010

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