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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

August 2014

This paper analyzes fertility and consumption decisions when the costs of raising a child and parents' income are stochastic and correlated. We model the decision to have a child similarly to the decision to exercise an option in finance literature. We obtain several new results relative to models where children are deterministic goods and only income and substitution effects drive fertility. For example, 1) Higher child risks diminish fertility and consumption. 2) Fertility is increasing in the correlation between income and child cost shocks. 3) 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: August 28, 2014

Suggested Citation

Gete, Pedro and Porchia, Paolo, Fertility and Consumption When Having a Child is a Risky Investment (August 2014). Available at SSRN: https://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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