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Fertility and Consumption When Having a Child is a Risky Investment

Pedro Gete

Georgetown University; IE Business School

Paolo Porchia

IE Business School

October 11, 2011

This paper studies children as a risky asset associated to an investment option. Children provide utility but have a stochastic maintenance cost. We obtain several new results relative to models where children are deterministic goods, among which: i) Higher child risks diminish fertility and consumption. ii) Risk aversion speeds up fertility as households use the safe utility derived from a child as insurance against fluctuations in consumption. iii) Fertility is increasing in the correlation between income and child cost shocks. The household is reluctant to have children when positive cost shocks come together with bad income shocks. The opposite result happens when children hedge income shocks. iv) The sign of the correlation determines whether higher income volatility speeds up or delays fertility.

Number of Pages in PDF File: 27

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Date posted: January 15, 2011 ; Last revised: October 12, 2011

Suggested Citation

Gete, Pedro and Porchia, Paolo, Fertility and Consumption When Having a Child is a Risky Investment (October 11, 2011). Available at SSRN: http://ssrn.com/abstract=1735042 or http://dx.doi.org/10.2139/ssrn.1735042

Contact Information

Pedro Gete (Contact Author)
Georgetown University ( email )
ICC 580
37th and O Sts., NW
Washington, DC 20057
United States
HOME PAGE: http://www9.georgetown.edu/faculty/pg252/
IE Business School
Calle Maria de Molina 12, Bajo
Madrid, Madrid 28006
Paolo Porchia
IE Business School ( email )
Serrano 99
Madrid, 28006
+34917821706 (Phone)
+34 91 745 47 62 (Fax)
HOME PAGE: http://paolo-porchia.profesores.ie.edu/
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