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Efficiency with Endogenous Population Growth

Author

Listed:
  • Mikhail Golosov

    (Massachusetts Institute of Technology)

  • Larry E. Jones

    (University of Minnesota)

  • Michèle Tertilt

    (Stanford University)

Abstract

In this paper, we generalize the notion of Pareto-efficiency to make it applicable to environments with endogenous populations. Two efficiency concepts are proposed, P-efficiency and A-efficiency. The two concepts differ in how they treat potential agents that are not born. We show that these concepts are closely related to the notion of Pareto-efficiency when fertility is exogenous. We then prove versions of the first welfare theorem assuming that decision making is efficient within the dynasty. We discuss two sets of sufficient conditions for noncooperative equilibria of family decision problems to be efficient. These include the Barro and Becker model as a special case. Finally, we study examples of equilibrium settings in which fertility decisions are not efficient, and classify them into ones where inefficiencies arise inside the family and ones where they arise across families.

Suggested Citation

  • Mikhail Golosov & Larry E. Jones & Michèle Tertilt, 2006. "Efficiency with Endogenous Population Growth," Discussion Papers 05-012, Stanford Institute for Economic Policy Research.
    • Handle: RePEc:sip:dpaper:05-012
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    References listed on IDEAS

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    More about this item

    Keywords

    pareto optimality; first welfare theorem; fertility; dynasty; altruism;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D6 - Microeconomics - - Welfare Economics

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