How do epidemics induce behavioral changes?

This paper is concerned with the impact of epidemics on economic behavior, and in particular on fertility and schooling. Special attention is paid to the fertility effect, which has been at the heart of a recent controversy around the AIDS crisis. An illustrative model is proposed where agents choose labor supply, life-cycle consumption and the number of children. We show that the optimal response in terms of fertility and labor supply to an epidemic shock depends on the relative strength of two forces at work, deriving from: (i) the induced decrease in the survival probability, and (ii) the impact of epidemics on wages. A comprehensive empirical study is then proposed to disentangle the latter effects in the HIV/AIDS and malaria cases. Using data from 69 developing countries over the period 1980-2004, we find that HIV/AIDS has a robust negative effect on fertility and a robust positive effect on education, while opposite results are found in the case of malaria. We argue that this discrepancy can be attributed to a sizeable wage effect in the AIDS case while such an effect is rather negligible under malaria at least in the short term, as higher malaria prevalence depresses wages in the long term.