The household demand model fails to explain the sharp falls in birth rates over short stretches of time (c.f. Coale and Watkins). To overcome this issue we need to incorporate externalities, ideational approaches and institutional approaches into our model.
Macro-level externalities mean that the socially optimal number of children differs from the privately optimal number. The most fundamental macro-level externality is whether population growth is good for a population. Considering other macro-externalities, we turn to research conducted by Lee and Miller who try to quantify macro-externalities to childbearing, which include the public costs associated with education, healthcare and pensions, which would be negative. Offset by the future tax that the children will provide, which is a positive externality, alongside the cost sharing of public goods and social infrastructure. Moreover, a large population aids the country in its military aims in two senses, firstly there is a greater population which can be used to fight any future wars, and secondly, there is a greater population to pay taxes for the (mostly) fixed costs associated with military spending. The authors believe that these “uniformly positive externalities arising from public good expenditures should not be dismissed lightly”.
They also consider the pecuniary externality of the effect on wages. They believe that high fertility will mean a future rightward shift of the labour supply curve, which will lower wages: they associate high fertility with lower future wages which will make people worse off. Whilst this makes sense in a partial-equilibrium model, if we consider a general-equilibrium model it might seem less likely. After all, this increased population will demand goods and services from the private sector, and so will increase demand which ought to shift the labour demand curve rightwards (resulting from derived demand for labour) by at least as much, if not more due to rising aspirations. Lee and Miller ignore this externality regardless, because they see it as pecuniary and only consider technical externalities, but it could be contested that this pecuniary externality need not be negative – as they assume – and under the right conditions (largely arising from public intervention and provision of public goods) this could be positive.
They consider the most basic form of externality one in which access to the commons results in depletion. If parents have free access to an area in which they can collect water, fuel and food then they don’t fully bear the costs from having greater children, and thus may increase their fertility. As a result we may see the environment deteriorate – deforestation, air and water pollution and over-killing of rare species of animals – as a result of high fertility levels. On top of this is the epidemiological risk whereby greater population will likely lead to a greater spread of disease, this can be observed with the HIV epidemic in Africa.
Examining their results we find that despite the positive externalities which do exist, the overwhelming evidence for poor countries suggests that macro-level externalities are negative from high fertility, this is largely due to the claim that citizens in poor countries have on commodities such as minerals and oil (a greater population means that more people require government funds resulting from the sale of these commodities). Hence we must conclude that despite positive externalities the size of the negative externalities, on a macro level, outweigh these and result in an overall negative externality to high fertility for poor countries (but the results are reversed for richer countries), particularly as the study largely omits environmental concerns, mainly due to a lack of information on the size of the damage a high population inflicts on the environment, and in their being limitations in how we can attach an economic cost to such damage.
Micro-level externalities are created by the structure of the families whereby the costs of looking after the child aren’t fully borne by the parents, and so they will choose to have more children than is optimal. There can also be externalities due to the different reproductive goals between a husband and wife in a relationship.
Firstly, in many developing countries there is a cultural phenomenon of extended families looking after children. In parts of West Africa up to half the children have been found to be living with kin other than their parents at any given time (Dasgupta). Furthermore, Iyer finds that in Ramanagaram, India, nearly 77% of surveyed women had extended family helping with child care. This means that parents don’t face the full costs of childcare, as they no longer bear this themselves – either through the opportunity cost of not working to look after the child(s) themselves, or the economic cost of having to pay a market-provided child-minder. On the other hand, a large extended family can reduce fertility due to a lack of privacy for intimate relations and traditional taboos on sexual intercourse at particular times are more likely to be observed by women in extended households (Hajnal). Furthermore, the social interaction effect of having other women in a household can inform a parent of the costs of children as well as unknown contraceptive measures.
If a Muslim woman had one additional female family member living with her then this decreased her fertility by 0.69 children (Iyer and Weeks), perhaps because she had access to greater family planning knowledge, or because it meant greater monitoring of abstinence norms. Furthermore, larger extended families would have meant more crowding, and more potential to help with production, both factors which would reduce fertility. It is also pointed out that causality may run the other way: low levels of fertility (due to exogenous reasons) may lead to greater living space and thus permit extended family members to live in the household.
Microeconomic theory tells us that when an individual doesn’t fully face the costs of an economic decision (which provides them with positive private utility) then they will demand more than is socially optimal. We can consider this below, where we assume that the marginal private benefit of having more children is equal to the marginal social benefit (a restriction which can be relaxed and examined) but the marginal private cost is lower than the marginal social cost (MPB=MSB, MSC<MPC graph). We can break this down further in examining the fixed and variable costs; parents have fixed costs whilst having free childcare will reduce the variable costs of childrearing.
As we observe, the result is overproduction in society’s sense because people would choose the fertility decision Q2 and produce more children than is socially desired, which is the level of Q1. This result is exacerbated by the fact that the government tends to provide services such as education and healthcare freely, which would mean that the marginal private cost to having more children is even lower than the marginal social cost shown above. The immediate policy implications of this might imply that we should encourage governments to charge (perhaps only a fraction) for provision of public goods, but this has detrimental income distribution effects, and there may be other ways to ameliorate the situation which don’t lead to immediately greater poverty levels (although these may fall over time if they are successful in reducing the population level).
Social interaction can lead to Marshallian atmospheric externalities: one individual’s fertility decision can affect another individual’s fertility decision due to the social desire to conform and fit in with others. Social interaction is the public interaction between individuals in a society as they perceive each other and observe each other’s fertility behaviour. Manski breaks down social interaction into endogenous effects – the number of children depends on the average rate of those nearby, i.e. with members of ethnic group or locality; exogenous effects – a woman’s fertility rate is affected by factors such as education and technology (e.g. mobile phones which affect the demand for children as investment goods); and correlated effects – that women in the same group tend to behave similarly because they face similar institutional environments or have similar individual characteristics.
Kohler disentangles social networks into ‘information networks’ which can only speed up a fertility transition that would also take place in the absence of social interaction, whilst ‘coordination networks’ can facilitate demographic change in societies that would otherwise be caught in a Malthusian situation. Kohler believes that these coordination networks are more important than the information networks, as they instigate the change in itself whilst the information network only affects the speed of fertility decline. The need to establish common knowledge within groups emphasizes the high communication requirements and the high degree of social cohesion that are necessary to achieve collective action in groups. The mechanism to achieve coordinated behaviour is therefore much easier in small groups or communities than in large populations.
Evidence from the field of sociology shows us that people tend to emulate the decisions of their neighbours and peers, as a result of the desire to conform – people don’t like the uncertainty attached with being an outsider – and to maintain a certain social status. Hence one couple’s fertility decisions are likely to affect their neighbours since individuals gain more utility out of a particular course of action because those in their immediate area undergo a particular course of action. This can lead an individual’s fertility decision to have a knock-on effect, resulting in high levels of fertility across society.
The negative reproductive externalities thus far discussed, such as state provided education and healthcare, fosterage, the gender imbalance, Marshallian atmospheric externalities and access to commons are all factors that are likely to prevent fertility rates from falling rapidly because there is no incentive to reduce fertility decisions by oneself. It can therefore be seen as a co-ordination failure, because if people could jointly agree to reduce their fertility behaviour then they would all jointly benefit – after all, the social optimal is for fertility to fall – but there is a credibility issue, as one family isn’t going to reduce their fertility behaviour unless they can be sure that others will follow suit (Kohler). This is due to social issues, such as wishing to conform to their peers and maintain a certain social status (Dasgupta) and because reducing family size by oneself may mean a loss of benefits – such as the ability to take from the commons – which could be exploited by others who do have large families. As a result we have a situation in which we have multiple equilibrium, as shown below where the S-curve is the reaction function representing the expected return based on overall fertility decisions, whereby we start at D3 (the high fertility equilibrium) but would rather be at D1 (the low fertility equilibrium) which is socially optimal.
Dasgupta suggests that one way in which we can overcome the coordination failure and move from D3 to D1 is through government intervention and the introduction of a tax on children, or a subsidy for having fewer children. Yet it may be possible to affect the social relations instead, rather than resorting to government intervention in the market. This can be achieved through other means, such as increasing education which often leads women to want fewer children (because they have greater opportunity costs for their time and have greater aspirations). This will then have a domino effect, because these social “deviants” (so-called because they go against the grain in wanting smaller families) will interact with others who are likely to then change their fertility decisions as the majority tend towards this socially deviant minority in order to reduce differences (Montgommery and Casterline). However, this mechanism will only work so long as the educated women still interact with other non-educated women such that the social interaction isn’t confined to one demographic only. Furthermore, this type of social spill-over is normally confined to the same gender (Bongaarts and Watkins), and as already discussed, men have a disproportionate role in the decision-making of fertility decisions, so action needs to be taken to reduce their fertility decisions.
Another method may be to alter social attitudes through the media, for example through soap operas on TV, and the beliefs espoused in newspapers and magazines. Iyer and Weeks find that the effect of media was significant and exerted a negative effect on fertility with a factor effect of 0.886 decrease: a 1% increase in access to media reduces TFR by 0.886 children.
Fortunately, Coale finds that once a region has begun a fertility decline it quickly spreads to neighbouring regions with the same language and culture. This is good news for developing countries: if they can overcome the co-ordination failure through social spill-overs then they may be able to quickly reduce their fertility growth, and the negative externalities associated with this.
Child mortality and fertility
Child survival hypothesis: people have more children if they live in an area where child mortality is high; they have on average more children so that the probability than the desired number survive is high.
Child replacement hypothesis: if a couple has lost a child then empirically we find that they replace this child quite quickly (Scrimshaw).
These hypothesis jointly mean that an increase in child mortality increases fertility levels. Hence one way in which a government can reduce fertility is to reduce child mortality (part of this can be done through increases in education).
Nearly all child deaths (under the age of 5) occur in developing countries, almost half in Africa, largely as a result of the HIV/AIDS epidemic. Generally it is higher amongst males than females and probability of children dying is significantly higher in poorer households than richer households.
Missing Women – according to Dreze and Sen, the number of missing women in India is estimated to be between 35 and 37 million, this is likely to be the result of a son-preference which results in females being abandoned at birth, or aborted during pregnancy due to the proliferation of detection methods.
Ideational theories of fertility argue that findings showing a relationship between education for women and declining fertility are due to changing perceptions, ideas and aspirations rather than to changes in women’s economic circumstances. They believe that social norms and attitudes towards birth control are the key factors which determine the timing of the fertility transition. This is based on European evidence which shows that fertility began to decline rapidly in a short period of time with no association to economic development (Coale and Watkins). Ideationalists believe that this decline was more due to the Enlightenment and the changing of ideas. Furthermore, evidence from Andhra Pradesh where there are low levels of education and high illiteracy, but high levels of exposure to mass media (75% of ever married women exposed) have resulted in low fertility levels. This is thus an exception to the argument that high levels of education are a necessary precondition for achieving replacement-level fertility.
Religious Factors
The Pure Religion Effect (particularised theology hypothesis) states that fertility is influenced by religion, for example the observation of certain norms, perhaps in when sexual intercourse is permitted and whether it is considered religiously good or bad to have large families. The characteristic effect is the argument that certain religions are associated with certain characteristics and have different socio-economic statuses.
The Role of the State
The state can alter population decisions by reducing desired fertility (the number of children couples want) and by reducing unwanted fertility (the number of children couples don’t want), around ¼ to a 1/5 of all birth are still unwanted. It could be argued that they have a legitimate interest in reducing fertility when externalities exist such that the socially optimal fertility rate is lower than the privately optimal fertility rate.
We can reduce the desired fertility level by raising costs of children and reducing benefits. For example, education can be used to reduce the benefits as it would mean there is less of a role for a child as a production good, although it could be argued that free education reduces costs associated with childcare, and may mean that a woman can maintain a role in the labour market along with having children, which may increase fertility.
In order to reduce unwanted fertility, the state could intervene to reduce the costs of contraceptives as well as increase knowledge, it can do this through education facilities, family planning clinics and control of the media. This might have a social multiplier effect, as once one person has improved knowledge of contraceptives they can inform others in their community. Unwanted fertility doesn’t just arise due to a lack of knowledge about methods and the cost of contraceptives but may be due to social opposition to the use of contraception, which occurs in India, Egypt and Ghana (perhaps due to religious and cultural reasons), and health concerns about the side effects.
Iyer believes that a persistent policy mistake during the past three decades has been to equate population policy only with improving family planning services, when instead we need to pay more attention to reproductive externalities, social interactions and fertility transitions.