While some impact from global climate change can already be felt, it is believed the significant impact will be for future generations. As the current generation would only face a cost to alleviate what leads to this climate change, one can make the argument that the future generations should pay us. But they are not there yet to do so. However, their parents are and these care about their offspring. So parents should be taxed to take care of reducing pollution and redistributing funds to those hurt by reducing pollution from current levels. That is a rather twisted argument to argue for future generations to pay (homework: where is the error?).
A better argument can be made for parents to pay. It is by Henning Bohn and Charles Stuart, who observe that each additional person exerts a negative externality onto the others by generating more population, taking more spaces, etc. That externality is not internalized, thus it needs to be taxed. Thus, whatever the reasons are that we subsidize having children needs to be amended by this tax. And by the calculations of Bohn and Stuart, the child subsidy could very well turn into a child tax. Indeed, the child pollution tax is 21% of life-time parent income per child, which is needed to divide the population by four in the long-run. However, that tax can be reduced to 5% if there is a cap of pollution permits set at current levels.
Of course, one can have endless arguments about the calibration used in the study. In this particular case, it is assumed that it costs 3% of output to reduce pollution by 25%. Also important is the output and time cost of children, as well as preference parameters. You may think of other parametrizations, but it remains that the child pollution tax makes sense. Only its amount it up to debate.
Showing posts with label demographics. Show all posts
Showing posts with label demographics. Show all posts
Divorce risk is good for the savings rate
Savings rates have declined over the last decades in developed economies. Many explanations have been offered for this, including the availability of better insurance that allows to smooth out better potential risks. One other that was suggested was that the higher divorce rates and the larger number of out-of-wedlock children would lead to lower savings because economies of scale in consumption do not kick in. An old paper by Luis Cubeddu and José-Víctor Ríos-Rull dispelled this idea, showing in a model economy that the higher risk of divorce actually increases the savings rate, as people foresee the risk and accumulate precautionary savings.
You may dismiss this theoretical result on the grounds that there is no way that freshly married people foresee increased divorce risk and react by saving more. And that may be why this paper was never published. But they there is now evidence from Italy that there is some truth to this result.
Filippo Pericoli and Luigi Ventura, who do not quote the above study, find that this precautionary saving is actually quite substantial at 11% of overall savings. So there, Italians are more rational than we thought.
You may dismiss this theoretical result on the grounds that there is no way that freshly married people foresee increased divorce risk and react by saving more. And that may be why this paper was never published. But they there is now evidence from Italy that there is some truth to this result.
Filippo Pericoli and Luigi Ventura, who do not quote the above study, find that this precautionary saving is actually quite substantial at 11% of overall savings. So there, Italians are more rational than we thought.
About fertility declines in wars
A typical war has a large impact on demographics. People die, mostly men. Fewer people are born, because men a missing, both because they are on the battlefield or, as mentioned, dead. At the end of the war, fertility shoots up to catch up for "missed opportunities", and we get baby booms. Well that is the conventional wisdom, and it is not necessarily right. For example, there is some evidence, discussed here before, that the baby boom after World War II was not about the men returning home and catching up on baby making. And one could also challenge the idea that fertility drops during the war because of the absence of men.
Guillaume Vandenbroucke does this for World War I in France. he draws a model of fertility choice where couples factor in that the potential father may die in war. Of course, this reduces fertility, but the question is how much. To get an answer, the model is carefully calibrated to pre-war fertility, mortality and income figures. Then 97% of the drop in fertility is explained by expectations. Of course, this assumes that the French correctly predicted the probability of death. Given that this war lasted much longer than expected and introduced killing technologies of never-seen-before efficacy, I doubt this is a correct assessment of the expectations at the time.
Guillaume Vandenbroucke does this for World War I in France. he draws a model of fertility choice where couples factor in that the potential father may die in war. Of course, this reduces fertility, but the question is how much. To get an answer, the model is carefully calibrated to pre-war fertility, mortality and income figures. Then 97% of the drop in fertility is explained by expectations. Of course, this assumes that the French correctly predicted the probability of death. Given that this war lasted much longer than expected and introduced killing technologies of never-seen-before efficacy, I doubt this is a correct assessment of the expectations at the time.
How much does race contribute to poverty in South Africa?
It is no one's surprise that blacks in South Africa are poor, less educated and less healthy than whites, given the still rather recent struggles through apartheid. But the country has also gone through a remarkable reversal of fortunes, with blacks now running the country and leading some formidable efforts to raise the blacks from chronic poverty. In some ways, these efforts are much more substantial than those that have been made in the US, where blacks are still a minority and yet have remained in poverty with little progress for decades. It is therefore of interest to understand how things have improved in South Africa, and whether the damage from apartheid has been overcome.
Carlos Gradín focuses on poverty and deprivation, both of which still show considerable gaps between blacks and whites, and comes to the conclusion that they are mostly explained by education and "family background" (parents' occupation and education). This all points to the fact that education is the big policy option, but it will take considerable time to reduce the gap.
These results are obtained by estimating a reduced-form equation for blacks and then letting them assume the characteristics of whites. Unfortunately, this procedure does not allow to determine whether there is still some discrimination against blacks, which would have been of particular interest in this context.
Carlos Gradín focuses on poverty and deprivation, both of which still show considerable gaps between blacks and whites, and comes to the conclusion that they are mostly explained by education and "family background" (parents' occupation and education). This all points to the fact that education is the big policy option, but it will take considerable time to reduce the gap.
These results are obtained by estimating a reduced-form equation for blacks and then letting them assume the characteristics of whites. Unfortunately, this procedure does not allow to determine whether there is still some discrimination against blacks, which would have been of particular interest in this context.
The fall of internal migration
It is costly to move, and those costs vary by culture and economic circumstances. International migration is of course hampered by immigrations laws and cultural barriers. But in most countries, internal migration is free and only restrained by costs and some degree of local attachment. In this respect, Americans are considered to be the most mobile, as they are very willing to drop everything to pursue better opportunities while the housing market is, usually, very fluid. In fact, the perception is that this mobility has even increased in the US and that it has been hampered only in the last few years, due to the current difficulties in selling homes.
Raven Molloy, Christopher Smith and Abigail Wozniak take a close look at the data and dispel some of those perceptions as myths. In fact, US internal migration has been in a steady decline for thirty years, a decline that in apparent whichever way you look at the data: by socioeconomic household characteristics and distance moved. And this has change little with the current crisis, probably because the additional incentive to move (as there is substantial evidence that some structural mismatch, including a geographic mismatch, has increased the unemployment rate recently) has been roughly compensated by the poor saleability of homes. Still, internal migration rates are still higher than almost everywhere else.
Raven Molloy, Christopher Smith and Abigail Wozniak take a close look at the data and dispel some of those perceptions as myths. In fact, US internal migration has been in a steady decline for thirty years, a decline that in apparent whichever way you look at the data: by socioeconomic household characteristics and distance moved. And this has change little with the current crisis, probably because the additional incentive to move (as there is substantial evidence that some structural mismatch, including a geographic mismatch, has increased the unemployment rate recently) has been roughly compensated by the poor saleability of homes. Still, internal migration rates are still higher than almost everywhere else.
The polygyny-slave trade connection
Polygyny, a male marrying several females, is now rare except for Africa and especially Western Africa. Why would it be so prevalent in West Africa? To sustain polygyny, one needs an unbalanced sex-ratio, which is not the case there.
John Dalton and Tin Cheuk Leung claim that this is just a matter of very persistent institutions. Indeed, the sex-ratio used to be unbalanced for extensive periods in West Africa, and in a more pronounced and persistent way than anywhere else, due to the slave trade. Indeed, it took away many males from the region through the actual forced emigration, but also because of the many tribal wars associated with slave capture raids (which Dalton and Leung do not take into account).
John Dalton and Tin Cheuk Leung claim that this is just a matter of very persistent institutions. Indeed, the sex-ratio used to be unbalanced for extensive periods in West Africa, and in a more pronounced and persistent way than anywhere else, due to the slave trade. Indeed, it took away many males from the region through the actual forced emigration, but also because of the many tribal wars associated with slave capture raids (which Dalton and Leung do not take into account).
The military draft, mortality and education
The data sometimes work in mysterious ways and provide puzzling correlations that lead to interesting research questions. One such correlation is that exemption from military service leads to lower mortality later in life.
Piero Cipollone and Alfonso Rosolia find this while looking at a natural experiment following the 1981 earthquake in Southern Italy. Boys from the affected region were exempted from military service, and they were followed, along with non-exempted neighbors, to track their life and education. By concentrating on boys both sides close to the border of the exempt region, they find that those exempt ended up being more educated. I can easily believe that, as they were not spending some of their prime learning years hiding in bushes and peeling potatoes, and they were expecting a longer work life. But the exempt also have lower mortality. This is not due to a lower incidence of military accidents, it is rather linked to the higher school completion rates. In fact, the authors conclude that raising high school completion by 10 percentage points would lower mortality by one or two percentage points in the decade thereafter. That is impressive at that age.
Piero Cipollone and Alfonso Rosolia find this while looking at a natural experiment following the 1981 earthquake in Southern Italy. Boys from the affected region were exempted from military service, and they were followed, along with non-exempted neighbors, to track their life and education. By concentrating on boys both sides close to the border of the exempt region, they find that those exempt ended up being more educated. I can easily believe that, as they were not spending some of their prime learning years hiding in bushes and peeling potatoes, and they were expecting a longer work life. But the exempt also have lower mortality. This is not due to a lower incidence of military accidents, it is rather linked to the higher school completion rates. In fact, the authors conclude that raising high school completion by 10 percentage points would lower mortality by one or two percentage points in the decade thereafter. That is impressive at that age.
The child quality/quantity trade-off in the Industrial Revolution
Non-economists cringe when they hear us talking about investment in children and the quantity/quality trade-off in this regard. Yet, this is a very real aspect of child rearing pointed out by Gary Becker that is at the core of many models, and has been found wild in nature. This trade-off is though to be an integral part of the demographic transition, where fertility suddenly drops massively in the course of development.
Marc Klemp and Jacob Weisdorf look at data from Anglican parish registers from the 18th century that contain all sort of demographic data to look at the child quality/quantity trade-off during the Industrial Revolution. Theory tells us that if the returns to education and/or the cost of time (wages) get larger, parents switch from having many children with no education to few of them with better education. Klemp and Weisdorf's data indicates clearly that this trade-off is present: each additional sibling reduces by 8% the probability of a child eventually becoming literate. That is a strong effect, in particular considering the larger number of children at the time, and its rather large standard deviation during this time of transition.
Marc Klemp and Jacob Weisdorf look at data from Anglican parish registers from the 18th century that contain all sort of demographic data to look at the child quality/quantity trade-off during the Industrial Revolution. Theory tells us that if the returns to education and/or the cost of time (wages) get larger, parents switch from having many children with no education to few of them with better education. Klemp and Weisdorf's data indicates clearly that this trade-off is present: each additional sibling reduces by 8% the probability of a child eventually becoming literate. That is a strong effect, in particular considering the larger number of children at the time, and its rather large standard deviation during this time of transition.
Fertility differences and agricultural techniques
There are times when you read a paper and you really wonder how the authors came up with the idea to check out a particular correlation in the data, because it seems to be so far-fetched. But thus a correlation can be beautiful if it also has a nice theory that comes with it.
The correlation that Alberto Alesina, Paola Giuliano and Nathan Nunn study is between current fertility and adoption of plough agriculture in history. OK, I did not think about that one. But now that they find a nice positive correlation, how could one explain it? They argue that this has to do that women and children are not particularly useful when ploughing, as strength is required. The traditional task of weeding, that fell on women and children, is not necessary with ploughing. Thus, there is a preference for fewer children that is ingrained in the culture of these regions to this day.
The correlation that Alberto Alesina, Paola Giuliano and Nathan Nunn study is between current fertility and adoption of plough agriculture in history. OK, I did not think about that one. But now that they find a nice positive correlation, how could one explain it? They argue that this has to do that women and children are not particularly useful when ploughing, as strength is required. The traditional task of weeding, that fell on women and children, is not necessary with ploughing. Thus, there is a preference for fewer children that is ingrained in the culture of these regions to this day.
Fertility and self-control
The Beckerian theory of fertility decisions in the family is based on the rationality and self-control of the involved parties, which is in stark contrast of the Malthusian theory of population growth, which relies on people breeding without control. As so often, the truth lies somewhere in between, as it is clear people guide their fertility outcomes but their is a substantial stochastic element to it.
Bertrand Wigniolle reinterprets Becker's theory by adding lack of self-control in the for of hyperbolic discounting, that is, discounted values fall rapidly in the near future and more slowly for the distant future. Wigniolle uses a three period model with parents valuing number and quality of children. In period 1, they choose the number of children and pay time costs for rearing them. In period 2, they choose their education, and support the associated costs. In period 3, they only enjoy their children. Hyperbolic discounting implies that every period they regret some of their past choices. The model yields very different results depending on parameter values. If parents have grounds to invest in the education of their children, then fertility is lower due to the lack of self-control. Call this a developed economy. If parents have no reason to invest in education (say because its return is low), then fertility gets higher with hyperbolic discounting. Call this a developing economy. And this is very sensitive to parameter values. A further reason to push for more schools and opportunities to use human capital in developing economies.
Bertrand Wigniolle reinterprets Becker's theory by adding lack of self-control in the for of hyperbolic discounting, that is, discounted values fall rapidly in the near future and more slowly for the distant future. Wigniolle uses a three period model with parents valuing number and quality of children. In period 1, they choose the number of children and pay time costs for rearing them. In period 2, they choose their education, and support the associated costs. In period 3, they only enjoy their children. Hyperbolic discounting implies that every period they regret some of their past choices. The model yields very different results depending on parameter values. If parents have grounds to invest in the education of their children, then fertility is lower due to the lack of self-control. Call this a developed economy. If parents have no reason to invest in education (say because its return is low), then fertility gets higher with hyperbolic discounting. Call this a developing economy. And this is very sensitive to parameter values. A further reason to push for more schools and opportunities to use human capital in developing economies.
Rent seeking in divorce
Divorce is breaking a marriage, and courts rule on the compensation of the involved parties. In countries where no-fault divorce is allowed, how compensation is allocated is very much dependent on the outside option of each party, particularly when negotiations happen without the involvement of a judge, who is then just a threat point. For example, when there is only consensual divorce allowed, the partner not seeking divorce has all the bargaining power. But when no-fault unilateral divorce is allowed, the roles are completely reversed.
Sietse Bracke, Koen Schoors and Gerd Verschelden study how the introduction of unilateral divorce changes outcomes in Belgium, where consensual divorce was already permitted. In particular they look at self-sacrifice, for example how some household member may specialize in home production and thus jeopardize her labor market potential and bargaining position in case of divorce, especially when there is no-fault unilateral divorce. Indeed, one can view this specialization as an investment in future rents from marriage, and divorce annihilates those.
To analyze this, the authors collected survey data from divorces in four cities for a year. Using alimony as a signal of bargaining power, they find that alimonies are higher or more likely for long marriages, for no-fault divorces, and when there is significant self-sacrifice. That would all be consistent by theory, but unfortunately these results are somewhat tainted by the fact that the law gives judges very similar directives for handling divorces outcomes.
Sietse Bracke, Koen Schoors and Gerd Verschelden study how the introduction of unilateral divorce changes outcomes in Belgium, where consensual divorce was already permitted. In particular they look at self-sacrifice, for example how some household member may specialize in home production and thus jeopardize her labor market potential and bargaining position in case of divorce, especially when there is no-fault unilateral divorce. Indeed, one can view this specialization as an investment in future rents from marriage, and divorce annihilates those.
To analyze this, the authors collected survey data from divorces in four cities for a year. Using alimony as a signal of bargaining power, they find that alimonies are higher or more likely for long marriages, for no-fault divorces, and when there is significant self-sacrifice. That would all be consistent by theory, but unfortunately these results are somewhat tainted by the fact that the law gives judges very similar directives for handling divorces outcomes.
Breastfeeding and cognitive skills
Breastfeeding is now almost universally promoted as the healthiest way to feed a baby. And indeed, while breastfed babies are a little smaller and than bottle-fed ones and gain a little less weight, they are healthier, it is thought mainly because the mother milk transmits antibodies and relevant nutrients. But not every mother breast feeds, maybe because not every mother realizes all the benefits, or because some of the costs are high (time management for working mothers or aesthetic issues). Or there are some other benefits that are not well known.
Maria Iacovou and Almudena Sevilla-Sanz report that breastfeeding has significant positive impacts on cognitive skills (reading, writing and mathematics). While this correlation is well known, it may be spurious because mothers who breastfeed are more likely to be well educated (Irish example), and their children are also more likely to be well educated as well. The obvious way to overcome this statistical issue, a randomized trial, is not feasible on ethical grounds. What Iacovou and Sevilla-Sanz do is use propensity score matching, which essentially matches babies that have the same characteristics but breastfeeding and then compare their cognitive skills. What is particularly impressive in this study is that the retained characteristics are very broad beyond baby demographics and health, including parent characteristics such as education, job, income, and even pre-birth attitude towards breastfeeding or home and neighborhood. And even after controlling for all these variables, the impact of breastfeeding is still significant on babies from Bristol (England), and it may even grow with age.
Maria Iacovou and Almudena Sevilla-Sanz report that breastfeeding has significant positive impacts on cognitive skills (reading, writing and mathematics). While this correlation is well known, it may be spurious because mothers who breastfeed are more likely to be well educated (Irish example), and their children are also more likely to be well educated as well. The obvious way to overcome this statistical issue, a randomized trial, is not feasible on ethical grounds. What Iacovou and Sevilla-Sanz do is use propensity score matching, which essentially matches babies that have the same characteristics but breastfeeding and then compare their cognitive skills. What is particularly impressive in this study is that the retained characteristics are very broad beyond baby demographics and health, including parent characteristics such as education, job, income, and even pre-birth attitude towards breastfeeding or home and neighborhood. And even after controlling for all these variables, the impact of breastfeeding is still significant on babies from Bristol (England), and it may even grow with age.
Syphilis cannot be eradicated
Syphilis is back. As the most widespread venereal disease in the 1930's it was curtailed after huge efforts, both in developed and developing countries. And ten years ago a push was made to finally eradicate it. But syphilis is quietly making a comeback, hidden in the shadows of AIDS. And because the transmission of this disease is primarily driven by risky sexual behavior, it can be a leading indicator of other sexually transmitted diseases on the rise.
David Aadland, David Finnoff and Kevin Huang use a model of human behavioral response to study this resurgence and come to the conclusion that there is a fundamental cycle that cannot be broken. The point is that the transmission model that epidemiologists use has constant parameters tracing back to biological features of the disease, but these parameters can change through human intervention, and they do. Call this a Lucas Critique of epidemiology. The key here is that when prevalence is low, individuals in a riskier fashion and in particular have more sexual partners. No reasonable policy can overcome this.
David Aadland, David Finnoff and Kevin Huang use a model of human behavioral response to study this resurgence and come to the conclusion that there is a fundamental cycle that cannot be broken. The point is that the transmission model that epidemiologists use has constant parameters tracing back to biological features of the disease, but these parameters can change through human intervention, and they do. Call this a Lucas Critique of epidemiology. The key here is that when prevalence is low, individuals in a riskier fashion and in particular have more sexual partners. No reasonable policy can overcome this.
Why is the Chinese savings rate so high?
The current global imbalances, at least those between the US and China, are only possible because China is currently saving a historically high share of its income. Various theories have been advanced to explain this surge in the savings rate: 1) Economic reform has increased household-level uncertainty and thus precautionary savings. 2) Forces have shifted from consumption-oriented households to savings oriented businesses. 3) Demographics and the life-cycle combined with the growth in income lead currently to high savings rates because savings change through the life cycle and thus fluctuations in the dependency ratio become important.
As Carl Bonham and Calla Wiemer point out, the savings rate has not been uniformly high and is in fact consistent with the changes in the dependency ratio. The savings rate increased through the 1980s to peak at 41.9% in 1995, then "bottomed" at 37.7.% in 2000, before surging back to 51.4% in 2008. The current global imbalance occurs in part because, unlike before, investment rates are restricted by policy, and stand at 43.5%. A modest decrease in the savings rate can rebalance things.
To test the three theories against these staggering numbers, Bonham and Wiemer use a structural VAR and determine the latter one is the most important, while the others cannot be dismissed. I am not particularly fond of VARs to test theories, they should rather just describe the data, but the evidence is quite compelling in this case. Of particular interest is that one can forecast the savings rate, as the dependency ratio is quite predictable. And this forecast shows that Chinese savings rates have peaked last year and will decrase quite significantly over the next decade. If true, this should reduce considerably the pressure on China to do something about current imbalances.
As Carl Bonham and Calla Wiemer point out, the savings rate has not been uniformly high and is in fact consistent with the changes in the dependency ratio. The savings rate increased through the 1980s to peak at 41.9% in 1995, then "bottomed" at 37.7.% in 2000, before surging back to 51.4% in 2008. The current global imbalance occurs in part because, unlike before, investment rates are restricted by policy, and stand at 43.5%. A modest decrease in the savings rate can rebalance things.
To test the three theories against these staggering numbers, Bonham and Wiemer use a structural VAR and determine the latter one is the most important, while the others cannot be dismissed. I am not particularly fond of VARs to test theories, they should rather just describe the data, but the evidence is quite compelling in this case. Of particular interest is that one can forecast the savings rate, as the dependency ratio is quite predictable. And this forecast shows that Chinese savings rates have peaked last year and will decrase quite significantly over the next decade. If true, this should reduce considerably the pressure on China to do something about current imbalances.
On the consequences of slavery
I reported now long ago on the consequences of slavery in Africa, where it is shown that countries where more slaves were taken still have lower levels of development. It is quite amazing that this can have an impact on average income for so long. But what about the receiving end of the slave trade?
Graziella Bertocchi and Arcangelo Dimico look at county data for the US and find that current average incomes are not related to the inflow of slaves. However, income inequality is. Why would that be? It could be because slave could not own land, and this still has an impact today. Or it could be because of discrimination. Or it could be because of persistent differences in human capital.
Now using a panel data set, Bertocchi and Dimico find the last one is the most likely one. The education gap between blacks and whites has never recuperated, and segregation was certainly part of it. But this strongly persistent effect means that affirmative action still has a reason to be.
Graziella Bertocchi and Arcangelo Dimico look at county data for the US and find that current average incomes are not related to the inflow of slaves. However, income inequality is. Why would that be? It could be because slave could not own land, and this still has an impact today. Or it could be because of discrimination. Or it could be because of persistent differences in human capital.
Now using a panel data set, Bertocchi and Dimico find the last one is the most likely one. The education gap between blacks and whites has never recuperated, and segregation was certainly part of it. But this strongly persistent effect means that affirmative action still has a reason to be.
Financial development and fertility
Why an economy's financial development matter for its fertility? For one, if there is little in terms of savings technology, then households need to find other ways in which they can save for old age, and children have traditionally been a good way to do this. But as long as property rights are reasonably well established, this should be that important, as there are many ways beyond financial assets to accumulate wealth, such as land, real estate, jewelry and cattle. Where a financial system can really bring change is when it gives access to credit for households.
Valerio Filoso and Erasmo Papagni study this with a life-cycle model where there is altruism from parents to offspring and vice-versa. They show that all depends on whether children are an inferior or a normal good, like in poor respectively rich countries. In addition, a relaxation of borrowing constraints allows greater investment in children. There is therefore ambiguity, which is compounded by price and second order effects. To sort it all out, Filoso and Papagni use cross-country data to estimate the sum of all these effects and find indeed that financial development decreases notably fertility in poor economies and increases it in rich ones. This may be an explanation for a fact that puzzled me for some time, why the US has a higher fertility than other rich countries.
Valerio Filoso and Erasmo Papagni study this with a life-cycle model where there is altruism from parents to offspring and vice-versa. They show that all depends on whether children are an inferior or a normal good, like in poor respectively rich countries. In addition, a relaxation of borrowing constraints allows greater investment in children. There is therefore ambiguity, which is compounded by price and second order effects. To sort it all out, Filoso and Papagni use cross-country data to estimate the sum of all these effects and find indeed that financial development decreases notably fertility in poor economies and increases it in rich ones. This may be an explanation for a fact that puzzled me for some time, why the US has a higher fertility than other rich countries.
How to compensate the short-lived
It is very unfortunate if you die early, and knowing this it would be optimal to compensate you for this misfortune. But this is difficult to achieve as your death is not predictable, and compensation after death is not very helpful to the deceased.
Marc Fleurbaey, Marie-Louise Leroux and Grégory Ponthière have figured out a scheme that would achieve this. First, they need to define a social welfare function that would make it desirable to compensate people for shorter lives. Second, they find a policy that would achieve such a compensation. The policy is to essentially cancel social security while putting the mandatory retirement earlier.
Basically it is all about getting people to consume early, so that the different between being dead or alive is not that large later in life. This seems very difficult to achieve given that life valuation studies indicate that people value life at a multiple of consumption. Furthermore, if we discourage people from saving that much, this must have large negative consequences for the accumulation of capital in a macroeconomic sense, something that has been neglected here, and should not.
Marc Fleurbaey, Marie-Louise Leroux and Grégory Ponthière have figured out a scheme that would achieve this. First, they need to define a social welfare function that would make it desirable to compensate people for shorter lives. Second, they find a policy that would achieve such a compensation. The policy is to essentially cancel social security while putting the mandatory retirement earlier.
Basically it is all about getting people to consume early, so that the different between being dead or alive is not that large later in life. This seems very difficult to achieve given that life valuation studies indicate that people value life at a multiple of consumption. Furthermore, if we discourage people from saving that much, this must have large negative consequences for the accumulation of capital in a macroeconomic sense, something that has been neglected here, and should not.
Was Malthus wrong about mortality?
One of the critical assumptions in the Malthusian model of growth that the mortality rate depends inversely on the standard of living. While this is not that obvious to replicate with data we have from Malthus' times, such a relationship ship is even more difficult to establish for previous centuries.
Morgan Kelly and Cormac Ó Gráda have dug up some inheritance records from England which allowed them to link wealth and age of death. What they find is quite interesting: all strata of society where affected by agricultural conditions. So if there were some poor crops, rich and poor were more likely to die. This fits right into the Malthusian model where the aggregate standard of living matters. The only subtlety is that the rich die a little later. Indeed, the authors do not attribute this mortality to hunger, but rather vagrancy following some poor crop that spreads epidemics. But such a relationship seems to have disappeared by the 17th century, which the authors justify by government intervention to help the poor. This makes it unclear why Malthus made it such a crucial component of his theory.
Morgan Kelly and Cormac Ó Gráda have dug up some inheritance records from England which allowed them to link wealth and age of death. What they find is quite interesting: all strata of society where affected by agricultural conditions. So if there were some poor crops, rich and poor were more likely to die. This fits right into the Malthusian model where the aggregate standard of living matters. The only subtlety is that the rich die a little later. Indeed, the authors do not attribute this mortality to hunger, but rather vagrancy following some poor crop that spreads epidemics. But such a relationship seems to have disappeared by the 17th century, which the authors justify by government intervention to help the poor. This makes it unclear why Malthus made it such a crucial component of his theory.
An unexpected consequence of crises: birth weight loss
Periods of crisis generate hardship, in particular if people do not have good ways to insure against these kind of shocks. In theory, temporary losses in income should not have much of a permanent impact, but in practices they may. For example, losing a job entails a wage loss in the next job, because one may have lost human capital, firm specific skills or good outside options. And those wage losses are quite persistent.
Carlos Bozzoli and Climent Quintana-Domeque identify a different persistent effect of a crisis by looking at Argentina. They notice that babies born around 2002 have had a birth weight 30 grams lower than usual, a non-trivial difference that corresponds to a difference between the US and Pakistan. Now, birth weight has been identified to be a remarkably good predictor of future outcomes for a population in terms of health, education and income. Thus, the effects of the 2002 crisis could linger in Argentina for decades.
Carlos Bozzoli and Climent Quintana-Domeque identify a different persistent effect of a crisis by looking at Argentina. They notice that babies born around 2002 have had a birth weight 30 grams lower than usual, a non-trivial difference that corresponds to a difference between the US and Pakistan. Now, birth weight has been identified to be a remarkably good predictor of future outcomes for a population in terms of health, education and income. Thus, the effects of the 2002 crisis could linger in Argentina for decades.
Why should marriages be eternal contracts?
Risk sharing contracts are good contracts, and they can have an important welfare benefit. However, it is not quite clear that these contracts should be valid for a life-time. Indeed, this is what marriage is. Aside from the fact that these contracts are restricted to be signed between people of opposite gender, one can also question why not more people could be included in them. That would be good risk diversification. The problem is that a marriage contract is not just about risk sharing (and for that we have a market for insurance contracts nowadays), it is also about limiting sex choices and commitments to supporting children. But all this could be achieved without marriage.
Anyway, Stefania Marcassa and Grégory Ponthière ask whether marriage contracts should be eternal and find that in most cases they should not. Their argument has nothing to do with risk and uncertainty, rather with declining match quality and unequal bargaining power. Indeed, when one potential partner has little bargaining power, marriage gives an important veto power. But when bargaining powers are rather equal, like they are nowadays, long-term contracts become more interesting because no one has an incentive to veto a marriage due to unequal power.
Anyway, Stefania Marcassa and Grégory Ponthière ask whether marriage contracts should be eternal and find that in most cases they should not. Their argument has nothing to do with risk and uncertainty, rather with declining match quality and unequal bargaining power. Indeed, when one potential partner has little bargaining power, marriage gives an important veto power. But when bargaining powers are rather equal, like they are nowadays, long-term contracts become more interesting because no one has an incentive to veto a marriage due to unequal power.
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