Efficiency with Endogenous Population Growth

Authors

  • Mikhail Golosov,

    1. Dept. of Economics, Massachusetts Institute of Technology, 50 Memorial Drive, Cambridge, MA 02142-1347, U.S.A.; golosov@mit.edu
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  • Larry E. Jones,

    1. Dept. of Economics, University of Minnesota, Minneapolis, MN 55455, U.S.A., and Federal Reserve Bank of Minneapolis; lej@econ.umn.edu
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  • Michèle Tertilt

    1. Dept. of Economics, Stanford University, Stanford, CA 94305, U.S.A.; tertilt@stanford.edu
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    • We would like to thank Kenneth Arrow, Doug Bernheim, Partha Dasgupta, Ed Prescott, Igor Livshits, and seminar participants at numerous locations for helpful discussions and comments, and the National Science Foundation (SES-0519324), the Federal Reserve Bank of Minneapolis, and the Stanford Institute for Economic Policy Research for financial support. We would also like to thank three anonymous referees and a co-editor for helpful comments.


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: ℘-efficiency and ��-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 prove a version of the first welfare theorem for Barro–Becker type fertility choice models and discuss how this result can be generalized. Finally, we study examples of equilibrium settings in which fertility decisions are not efficient, and we classify them into settings where inefficiencies arise inside the family and settings where they arise across families.

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