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Can a couple's fertility 7 behavior impose costs on society at large? A key policy question in considering population growth is whether a couple's childbearing decisions impose costs on, or provide benefits for, over families. If such externalities (effects extemal to the decision maker) exist, Here may be a role for public policies that seek to incorporate the social costs and benefits of fertility into private decisions about family size. As in the case of pollution externalities (see Question 3), an argument can be made that equating social and private costs yields gains that could potentially increase the well-being of all members of society. In considering this question, there is an important distinction to be made between true externalities and pecuniary externalities. True externalities are external costs and benefits that are not mediated through markets. For example, because access to the air is unrestricted, manufacturers do not factor into their production decisions Be costs imposed on others by Heir air pollution. It is possible to envision systems of property rights that would either give people the right to clean air or manufacturers the right to pollute. Under either system, trading of the rights would theoretically result in an optimal level of pollution, at which the social costs of an additional unit of pollution would equal the social gains of the associated increment of production. Thus, introduction of property rights, or of government regulations that achieve the same end, results in a net gain to society. Of course, He manner in which these gains are distributed depends on the way property rights are defined and allocated, but in principle the gains could be distributed so as to make everyone in society better off. For this reason, welfare economics unambiguously recommends policy intervention to correct market failures resulting from true externalities. 78

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FERTILITY BEHAVIOR 79 In contrast, pecuniary extemalities are market-registered actions that benefit some people and hurt others, and may not result in a net gain or loss to society. Policy interventions to counteract a pecuniary extemality imply a value judgment favoring redistribution of income from one group to another. For instance, a farmer's decision to plant an extra acre of wheat will slightly depress the market price of wheat. Although He price decrement is minute, it affects the entire crop so dirt Be total loss of income to other farmers is a palpable amount. Ibis loss to farmers, however, is a gain to consumers. Policies that restrict agricultural acreage or crop production, which are often found in developed countries, represent a political determination to redistribute income from consumers to farmers. A decision to bear children can impose both true and pecuniary externalities on over members of society. In this chapter we consider the conclusions of some previous chapters to determine Me role of externalities in private childbearing decisions. We discuss three situations in which private fertility decisions have social repercussions: in the use of common-property resources, in the labor market, and in the intrafamily allocation of goods. The chapter concludes win a discussion of policy implications and options. COMMON-PROPERTY RESOURCES AND PUBLICLY SUBSIDIZED GOODS AND SERVICES As discussed under Question 3, population growth can exacerbate the externalities inherent in common-property resources. Resources for which well-defined rights of access either do not exist or are not enforced are typically overexploited and subject to damage. These include environmental resources like air and water, some forests and fisheries, and some ag~icultwal land. While the cause of problems is the absence of limits on use, the demand for many common-property resources increases ninth population growth, particularly those resources required for food production or related to human settlement. If population growth contributes to long-run resource degradation or destruction, the cost falls on the society as a whole, not just on those making childbearing decisions. A related extemal effect involves He public sector provision of infrastructure. All governments assume responsibility for providing certain public goods that He private sector is unable to provide because of He difficulty of charging users, He large investments required, or the inefficiency of excluding potential users. Such goods include transportation systems, sanitation and water supply, and national defense. Population growth can have a beneficial effect on He provision of public goods by permitting He exploitation of economies of scale to reduce per capita costs. However, economies of scale in the production of most public

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80 POP Ul=70N GROWTH Ad ECONOMIC DEVELOPMENT infrastructure tend to diminish as the size of the population to be seated increases (Henderson, 1985), so that population growth beyond certain levels confers no additional benefit. Moreover, rapid population grown in developing countries, particularly in urban areas, contributes to congestion and excessive demands on existing infrastructures (Linn, 1983) and may promote disease transmission. Because these congestion costs must be borne by the society as a whole, not just by the families who bear many children, rapid population growth may have net negative extemal effects on public welfare. The logic supporting publicly subsidized education is usually of a different sort, stressing the social interest in having a well-educated electorate and labor force or the importance of supplying a population's basic needs. Nevertheless, public education also creates externalities. Publicly subsidized education disproportionately benefits families with children, at least in the short run, and a couple's decision to have an extra child imposes costs on all taxpayers. Some of these costs will be reimbursed by future tats payments by the educated child to support the education of other people's children. Given the high rates of return to social investment in schooling that we noted above, the added taxes paid by an additional educated adult may be substantial. But the present value of those future tax payments may be less than current educational costs. Moreover, both families and governments typically find it difficult to finance current educational costs by borrowing against future earnings. Thus, the bit of an additional child into a society that offers subsidized education would impose extemal costs. Subsidies for the aged work in the opposite direction. In a society Hat offered tax-financed social security benefits (blIt not public education), the birth of an additional child would confer e~ctemal benefits, and fertility would fall below the socially optimal level (Willis, 1985~. WAGES AND RENTS In answering Question 4, we concluded that more rapid population growth can tend to depress wages and raise He return to capital and land. Hence, it is clear that childbearing decisions result, at the least, in pecuniary externalities. Population growth among the co-owners of a common resource wills of course, dilute each owner's share of the resource. In general, families win relatively large amounts of capital or land are advantaged by other families' high fertility, while families that rely primarily on labor income are disadvantaged. A much more difficult question is whether true externalities also exist in a competitive market of self-interested families. In other words, does higher fertility result not merely in a redistribution from worked to landowners, but in a net loss of welfare to society as a whole? This line of research is

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FERTILITY BEHAVIOR 81 comparatively new and still entirely theoretical in nature. Preliminary results (Nerlove et al., 1984; Willis, 1985) indicate that under certain restrictive assumptions-such as a population of identical individuals-there are no true externalities, but that if some of those assumptions are relaxed-for instance, if the population is heterogeneous-there may be tine externalities. However, it is clear that true externalities do exist if individuals care not only about their own families, but about the extent of poverty or the degree of income inequality in the society. An increase in fertility will, at least in the short run, shift income from landless workers to owners of land and capital. This shift will tend to increase both the number of people who are poor (defined in absolute income terms) and the degree of income inequality in the society. To the extent that these results are believed by the society to be undesirable, there is a social rationale for restricting fertility, similar to the rationale for land redistribution. INTRAFAMILY EXTERNALITIES If parents do not behave altruistically out of concern for the welfare of their children, intergenerational externalities will exist even within the same family line. Parental altruism is an intuitively appealing premise, since family behavior interpretable in this manner seems pervasive across cultures. Indeed, one can argue that altruistic family behavioral norms reflect the importance of intergenerational cooperation, representing a nonmarket social institution that serves to internalize potential external effects. And, in a stable culture, it is not unreasonable to expect that family size norms embody reliable information about the economic conditions that will be faced by the next generation. The near-universality of parental altruism and its ability to compensate for intergenerational external effects probably explains why reproductive rights are ceded to the family in almost all societies, even though population size has important collective consequences. Of course, parental altruism can fail. Parents may decide to have children in order to exploit them economically with no concern for their well-being. Similarly, parents may abuse or neglect children. Many societies have laws that seek to protect children from exploitation, abuse, or neglect by adults, suggesting that family sovereignty is not always considered an immutable principle. But even if parents make fertility decisions that by to take the future well-being of children into account, their expectations may riot be realized. Because of the scope and speed of the social and economic changes that characterize developing countries, families may be unable to correctly anticipate the impact on He family of an additional child. If existing children are disadvantaged by a subsequent bird in the family, then one can ask whether there is a legitimate role for government intervention

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82 POPULATION GROWTH AND ECONOMIC DEVELOPMENT to represent the interests of those children in parents' childbearing decisions. Such interventions have precedents in child labor laws and compulsory school legislation. If this basis for social intervention is accepted, then the justification for government programs related to fertility becomes much broader than if externalities are confined to interfamily relations. Similar questions could also be wised about relations between husband and wife. These questions involve major issues about the proper basis for social decision making and, ultimately, about values-issues that lie well beyond our competence. POLICY IMPLICATIONS OF POPULATION EXTERNALITIES Under Question 6 and again in the conclusion of this report, we argue that the provision of family planning services increases parents' welfare by allowing them to achieve the number and spacing of births they desire. Thus family planning programs have a solid rationale on the basis of within-family effects. Where negative externalities from childbearing exist, the voluntary use of family planning services by one family confers external benefits on others, making family planning a particularly attentive policy instrument. But the existence of negative externalities implies that even if all parents achieve their desired family size, the number of birds may still be above the social optimum. A case can then be made for policies "beyond family planning." It must be recognized immediately that any policy entails some cost-at a minimum, an administrative cost-and Hat the case for such policies can only be made by comparing costs to benefits. Policies Cat go beyond family planning may also impose welfare costs and require families to forgo the satisfaction from additional children. Principles of welfare economics suggest that one should distinguish among three kinds of policies: those that alter childbearing incentives via taxes or subsidies, those that change "tastes" for children, and those that impose fused limits on the number of children per family. We first compare the first and last kinds of policies, then consider the second. If He other costs of a given fertility reduction are equal, the last policy is the least attractive because it will lead to a substantial welfare loss for those people who place a high value on bearing an additional child but who are prevented from doing so. Furthermore, the means of enforcing quantity rationing are almost certain to be coercive, impinging on personal liberties in the very sensitive area of reproductive rights. Compared with quantity rationing, an advantage of altering incentive structures by a system of subsidies or taxes is Hat the people who choose to reduce Heir fertility in response to a rise in He "cost" of children are likely to place He lowest value on having an additional child. This favorable selectivity feature suggests that the private welfare loss to childbearing couples from a reduction in ferdli~

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FERTILITY BEHAVIOR 83 will be less when incentive schemes are used than when quantity rationing is imposed. Another clear advantage for incentive schemes is that childbearing remains purely voluntary. One must, of course, be aware of other effects of policy, such as their impact on different social groups and the potential for abuses in their implementation. The advantage of incentive schemes becomes less clear-cut when children's welfare is introduced. Many policies that would work by raising the relative costs of children (e.g., reducing subsidies for schooling, lowering tax deductions for children) have the effect of Distributing income from families that have children and may thereby compromise other social goals. Other forms of incentive programs, which avoid this effect, include incentives to delay mamage, to space births further apart, or to use various forms of contraception. Less direct actions include providing old-age support for persons without children. Governmentally imposed incentives that affect many forms of personal behavior are common in many societies, and incentive programs to alter fertility do not appear different in nature from most of them. A comparison of incentives and coercion also introduces equity issues, similar to those related to a comparison of a volunteer and a universal (a lotte~y-based) draft. In short, poorer people tend to find the incentives more attractive than richer people, who may, in effect, disproportionately "buy out" of the incentive scheme to restrict births. So the favorable effect of an incentive program on the distribution of income may be partly offset by unfavorable effects on the distribution of children by class. Nevertheless, the voluntary nature of incentives programs at least has He advantage that the outcome for a particular family is freely chosen. Government programs designed to change "tastes" for children are difficult to evaluate from He viewpoint of welfare economics, which takes tastes as a given. But it is clear that a change in preference for children relative to market goods, which leads to altered fertility, might resolve problems of external effects related to population growth. However, programs designed to effect that change pose some potential problems. Persuasion campaigns in the mass media can shade into propaganda that involves deception and misinformation. Unless Hey are done with sensitivity, they can stigmatize children as well as adults who choose to have them. One could, however, take the position that such campaigns are simply designed to counteract pronatalist norms and customs developed under earlier conditions. ~ most populations, powerful norms governing family behavior are pronatalist because a major function of the family has been to ensure reproduction of both itself and He society of which it is a pan. Over kinds of policy changes fit less readily into the categories of welfare economics. Mandated changes~ften adaptive-in He status of women, greater

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84 POPUl~ION GROWTH AND ECONOMIC DEVELOPMENT emphasis on rural development, and many other development programs basically involve changes in the structure of society and can be expected to have some effect on fertility (for a discussion of these issues, see Ridker, 1976; Schutjer and Stokes, 1984; Bulamo, 1984~. Besides advancing other social goals, such programs affect fertility either through changes in incentives or changes in tastes, rather than through quantity rationing. CONCLUSIONS Private fertility decisions have several external effects. First, where there are common-property resources, population growth can result in congestion or over-rapid resource degradation. Second, publicly subsidized entitlements to education or social security can cause childbearing to have either external costs or benefits, depending on the tax system, the discount rate, and a child's prospective lifetime income profile. Similarly, the provision of public infrastructure can result in either negative or positive externalities, depending on whether the infrastructure is subject to congestion or to economies of scale. Third, population growth tends to benefit holders of land and capital and hurt those who depend primarily on wages for income. Fourth, parental fertility decisions may not always be in the* children's best interests, particularly when parents underestimate the pace and consequences of social change over the* children's lifetimes. These effects are likely to result in a negative external effect of childbearing in most developing counties, where there are no social security systems and where economies of scale in infrastructure are more than counterbalanced by congestion costs. When negative externalities exist, a minimum policy prescription would include the subsidized provision of family planning services to allow couples to achieve their desired levels of fertility. Reducing the number of unwanted birds in a given family results both in direct welfare gains to the family and in gains to society at large. To fully overcome the negative externalities, however, would require additional policy action. If the external effects are deemed sizable enough to warrant policy intervention, alterations in incentive structures appear far more appealing from the viewpoint of welfare economics Man does quantity rationing. It is important to note, however, Mat current data and theory are inadequate to quantify the size of external effects; certainly, there is no evidence to suggest that drastic financial or legal restrictions on childbearing are warranted.