ECON 450 Development Economics - publish.illinois.edu · The Malthusian Population Trap The Microeconomic Household Theory of Fertility ECON 450 Development Economics The Causes of

The Malthusian Population TrapThe Microeconomic Household Theory of Fertility

ECON 450Development Economics

The Causes of High Fertility in Developing Countries

University of Illinois at Urbana-Champaign

Summer 2017

Henrique Veras de Paiva Fonseca ECON 450 Development Economics


Introduction

The next question we address is: What are the principaldeterminants or causes of high fertility rates in developingcountries and can these determinants of the "demand" forchildren be influenced by government policy?To try to answer this critical question, we turn to a very old andfamous classical macroeconomic and demographic model, theMalthusian "population trap", and a contemporary and highlyinfluential neoclassical microeconomic model, the householdtheory of fertility.



Outline

1 The Malthusian Population Trap

2 The Microeconomic Household Theory of Fertility



The Malthusian Population Trap

More than two centuries ago, the Reverend Thomas Malthus putforward a theory of the relationship between population growthand economic development that is influential today.Malthus postulated a universal tendency for the population of acountry, unless checked by dwindling food supplies, to grow at ageometric rate, doubling every 30 to 40 years.




At the same time, because of diminishing returns to the fixedfactor, land, food supplies could expand only at a roughlyarithmetic rate.Because the growth in food supplies could not keep pace withthe burgeoning population, per capita incomes would have atendency to fall so low as to lead to a stable population existingbarely at or slightly above the subsistence level - MalthusianPopulation Trap.




Malthus therefore contended that the only way to avoid thiscondition of chronic low levels of living or absolute poverty wasfor people to engage in "moral restraint" and limit the number oftheir progeny.




Diagrammatically, the basic Malthusian model can be illustratedby comparing the shape and position of curves representingpopulation growth rates and aggregate income growth rateswhen these two curves are each plotted against levels of percapita income.







Per capita income growth is, by definition, the difference betweenincome growth and population growth - hence the verticaldifference between these two curves.Whenever the rate of total income growth is greater than the rateof population growth, income per capita is rising; thiscorresponds to moving to the right along the x-axis.Conversely, whenever the rate of total income growth is less thanthe rate of population growth, income per capita is falling, movingto the left along the x-axis.




As drawn, the curves first cross at a low level of income, labeledS (for subsistence).This is a stable equilibrium: If per capita income levels becamesomewhat larger than (were to the right of) S, it is assumed thatpopulation size will begin to increase in part because higherincomes improve nutrition and reduce death rates.




But then, as shown in the figure, population is growing fasterthan income, so income per capita is falling, and we move to theleft along the x-axis.




On the other hand, if income per capita were a little less than S,the total income curve would be above the population growthcurve and so income per capita would be rising.This corresponds to a move to the right along the x-axis.




Thus our conclusion is that point S represents a stableequilibrium.This very low population growth rate along with a very lowincome per person is consistent with the experience of most ofhuman history.




According to modern-day neo-Malthusians, poor nations willnever be able to rise much above their subsistence levels of percapita income unless they initiate preventive checks (birthcontrol) on their population growth.If per capita income can somehow reach a threshold level,labeled T in the figure, from that point population growth is lessthan total income growth, and thus per capita income growscontinually.




Countries or regions in such a population trap can also escape itby achieving technological progress that shifts the income growthrate curve up at any level of per capita income.And it may be able to achieve changes in economic institutionsand culture ("social progress") that shifts the population growthcurve down.




In this way, the population trap equilibrium is eliminatedaltogether, and the economy is able to proceed withself-sustaining growth, since total income growth is now greaterthan population growth at each level of per capita income. As aresult, income per capita now grows steadily.



The Malthusian Population TrapHow Technological and Social Progress Allows Nations to Avoid the Population Trap



The Malthusian Population TrapCriticisms of the Malthusian Model

We can criticize the population trap on two major grounds:1 Do not take adequate account of the role and impact of

technological progress.2 Based on a hypothesis about a macro relationship between

population growth and levels of per capita income that does notstand up to empirical testing of the modern period.



The Malthusian Population TrapCarrying Capacity

"Carrying Capacity"Biology term to express "the maximum population size of thespecies that the environment can sustain indefinitely, given thefood, habitat, water, and other necessities available in theenvironment." (from Wikipedia)



The Malthusian Population TrapCarrying Capacity

https://www.youtube.com/watch?v=lS_msYArtvY


https://www.youtube.com/watch?v=lS_msYArtvY


Outline

1 The Malthusian Population Trap

2 The Microeconomic Household Theory of Fertility



The Microeconomic Household Theory of Fertility

In recent years, economists have begun to look more closely atthe microeconomic determinants of family fertility in an attempt toprovide a better theoretical and empirical explanation for theobserved falling birth rates associated with stage 3 of thedemographic transition.




It is used the traditional neoclassical theory of household andconsumer behavior for their basic analytical model and haveused the principles of economics and optimization to explainfamily size decisions.




The conventional theory of consumer behavior assumes that anindividual with a given set of tastes or preferences for a range ofgoods (a "utility function") tries to maximize the satisfactionderived from consuming these goods subject to his or her ownincome constraint and the relative prices of all goods.




In the application of this theory to fertility analysis, children areconsidered as a special kind of consumption (and in developingcountries, particularly low-income countries, investment) good sothat fertility becomes a rational economic response to theconsumer’s (family’s) demand for children relative to other goods.




Mathematically, the relationships can be expressed as follows:

Cd = f (Y ,Pc ,Px , tx)

where Cd the demand for surviving children, is a function of thegiven level of household income (Y ), the "net" price of children(the difference between anticipated costs, mostly the opportunitycost of a mother’s time, and benefits, potential child income andold-age support, Pc), the prices of all other goods (Px ), and thetastes for goods relative to children (tx ).




Under standard neoclassical conditions, we would expect thefollowing (expressed both mathematically and in words):

1 The higher the household income, the greater the demand forchildren (∂Cd/∂Y > 0).

2 The higher the net price of children, the lower the quantitydemanded (∂Cd/∂Pc < 0).

3 The higher the prices of all other goods relative to children, thegreater the quantity of children demanded (∂Cd/∂Px > 0).

4 The greater the strength of tastes for goods relative to children,the fewer children demanded (∂Cd/∂tx < 0).




The next figure provides a simplified diagrammatic presentationof the microeconomic theory of fertility.The number of desired (surviving) children, Cd , is measuredalong the horizontal axis, and the total quantity of goodsconsumed by the parents, Gp, is measured on the vertical axis.






The Microeconomic Household Theory of FertilityIndifference Curves

Household desires for children are expressed in terms of anindifference map representing the subjective degree ofsatisfaction derived by the parents for all possible combinationsof commodities and children.



The Microeconomic Household Theory of FertilityIndifference Curves

Each individual indifference curve portrays a locus ofcommodity-child combinations that yield the same amount ofsatisfaction.Any point (or combination of goods and children) on a "higher"indifference curve represents a higher level of satisfaction thanany point on a lower indifference curve.



The Microeconomic Household Theory of FertilityBudget Constraint

The household’s ability to "purchase" alternative combinations ofgoods and children is shown by the budget constraint line, ab.Thus all combinations on or below line ab are financiallyattainable by the household on the basis of its perceived incomeprospects and the relative prices of children and goods, asrepresented by the slope of the ab budget constraint.The steeper the slope of the budget line, the higher the price ofchildren relative to goods.






The Microeconomic Household Theory of FertilityOptimizing Choice

The household chooses from among all attainable combinationsthe one combination of goods and children that maximizes familysatisfaction on the basis of its subjectively determinedpreferences.This optimal combination is represented by point f , the tangencypoint between the budget constraint, ab, and indifference curveI2.Therefore, C3 children and G2 goods will be demanded.



The Microeconomic Household Theory of FertilityOptimizing Choice



The Microeconomic Household Theory of FertilityComparative Static

A rise in family income, represented in the figure by the paralleloutward shift of the budget line from ab to a′b′ , enables thehousehold to attain a higher level of satisfaction (point h on curveI4) by consuming more of both commodities and children.Note that as income rises, parents may spend more on eachchild, preferring a smaller number of children, each of higher"quality", for example, healthier and better educated.







Similarly, an increase in the price (opportunity cost) of childrenrelative to other goods will cause households to substitutecommodities for children.Other factors (namely, income and tastes) being constant, a risein the relative price of children causes the householdutility-maximizing consumption combination to occur on a lowerindifference curve, as shown by the movement of the equilibriumpoint from f to e when the budget line rotates around point a toab′′.







Note, finally, that if there is a simultaneous increase in householdincome and net child price as a result of, say, expanding femaleemployment opportunities and a rise in wages coupled with a taxon children beyond a certain number per family, there will be bothan outward shift and downward rotation of the budget constraintline to, say, dashed line cd .The result is a new utility-maximizing combination that includesfewer children per family (point g compared with point f ).







In other words, higher levels of living for low-income families incombination with a relative increase in the price of children(whether brought about directly by fiscal measures or indirectlyby expanded female employment opportunities) will motivatehouseholds to have fewer children while still improving theirwelfare.This is just one example of how the economic theory of fertilitycan shed light on the relationship between economicdevelopment and population growth as well as suggest possiblelines of policy.



Questions

1 The Malthusian population trap assumes that1 contraception is unavailable.2 technological progress may be rapid.3 mortality declines with per capita income.4 all of the above.



Questions

1 The Malthusian population trap assumes that1 contraception is unavailable.2 technological progress may be rapid.3 mortality declines with per capita income.4 all of the above.



Questions

2 Which of the following will cause the largest reduction in thebirthrate?

1 the population becomes less religious2 public healthcare improves3 education becomes more available4 an increase in the opportunity cost of a woman’s time



Questions

2 Which of the following will cause the largest reduction in thebirthrate?

1 the population becomes less religious2 public healthcare improves3 education becomes more available4 an increase in the opportunity cost of a woman’s time



Questions

3 Which of the following is a direct implication of the view thatchildbearing is an economic decision?

1 People will not have additional children unless they can earn aprofit from doing so.

2 Social factors have no effect on childbearing decisions.3 Compulsory education will increase fertility because educated

children have the potential to earn higher salaries.4 Fertility should fall with improved opportunities for women to work

in jobs outside the home.



Questions

3 Which of the following is a direct implication of the view thatchildbearing is an economic decision?

1 People will not have additional children unless they can earn aprofit from doing so.

2 Social factors have no effect on childbearing decisions.3 Compulsory education will increase fertility because educated

children have the potential to earn higher salaries.4 Fertility should fall with improved opportunities for women to

work in jobs outside the home.



Questions

4 The Malthusian population trap model has been criticized on thegrounds that it

1 ignores the role of technological progress.2 assumes that population growth is primarily determined by

individual choice over the number of children to have.3 both (1) and (2) are correct.4 neither (1) nor (2) is correct.



Questions

4 The Malthusian population trap model has been criticized on thegrounds that it

1 ignores the role of technological progress.2 assumes that population growth is primarily determined by

individual choice over the number of children to have.3 both (1) and (2) are correct.4 neither (1) nor (2) is correct.


Documents

ECON 450 Development Economics - publish.illinois.edu · The Malthusian Population Trap The Microeconomic Household Theory of Fertility ECON 450 Development Economics The Causes of