Matthias Doepke and Fabrizio Zilibotti on Family Economics
Matthias Doepke is Professor of Economics at Northwestern University. He has been working on growth and development, monetary economics, family economics, and demographic aspects of macroeconomics. Fabrizio Zilibotti is the Tuntex Professor of International and Development Economics at Yale University. His research interests lie in economic growth and development, political economy, macroeconomics, and the economic development of China. Doepke’s and Zilibotti’s RePEc/IDEAS entries.
Has the field of family (macro) economics matured enough to be of interest to the general public?
Family macroeconomics is a young field, but in our view an increasingly central one. Many of the household decisions that matter for macro outcomes take place in the context of the family. This is most obvious in the case of fertility decisions, which determine population growth and play a crucial role in models of long-run growth. But family decision-making is equally important for the accumulation of human capital, the variability of aggregate labor supply (through the participation decision in families with multiple potential workers), and the evolution of long-run inequality (through assortative mating and differential investment in children).
Some aspects of family decision-making have been incorporated in macroeconomics for a long time, such as role of home production in RBC theory. In recent years, the literature on family macro has grown rapidly, as part of a general trend towards a more sophisticated modeling of decision-making in macro models that incorporates various dimensions of heterogeneity. The surveys by Doepke and Tertilt (2016) and Greenwood, Guner, and Vandenbroucke (2017) show how much progress has been achieved.
Regarding the maturity of the field of family macro, as economists who have worked across different areas we actually think that economics is particularly successful when explaining family behavior. In our view, this is because the stakes are so high – who to marry, whether and how many kids to have, and how to parent are some of the most important decisions people take in their lives. This means they think a lot about how to get these decisions right, and as a consequence the economic approach of envisioning people as rationally responding to incentives works really well.
The high stakes in family decisions also generate interest in this research from the general public. We have received a tremendous response from people outside academia about our book on the economics of parenting (Doepke and Zilibotti 2019). Most parents spend a lot of time thinking about the right way to raise their kids, and many are interested in hearing what economics has to say about why parents do what they do, and why parenting practices have changed so much over time.
You argue that spatial and time differences in income and wealth distribution are central to understanding the evolution of parenting practices. What about the change in the role of women in work and society?
Our general argument is that parents want their children to do well in life, and hence parenting practices respond to expectations about what future economic conditions will be like. In an environment with high inequality, ending up relatively high on the social scale is desirable, and hence parents push harder to give their kids an advantage (Doepke and Zilibotti 2017; Doepke et al. 2019). That’s why parenting is so intense in China and the United States, and much more relaxed in Sweden and Switzerland.
Similarly, women’s role in society affects whether parents raise their boys and girls in similar or different ways. In times and places where gender roles are strictly separated, parenting for girls and boys reflects these differences to prepare them for their different lives. In societies that undergo change towards more gender equality, parents develop similar ambitions for their daughters and sons, and gender differences in parenting become smaller.
Even within countries, the views on gender roles that different groups of parents hold are reflected in parenting decisions. In the United States, for example, we can get information on gender attitudes and parenting from the Child Development Supplement of the PSID. In the survey, respondents are asked if they agree with the statement that “there is some work that is men’s and some that is women’s and they should not be doing each other’s.” Parents who agree with this statement are more likely to be authoritarian in general, and especially so towards their daughters. Or consider the statement that “parents should encourage just as much independence in their daughters as in their sons.” Few parents disagree with this statement, but those who do are twice as likely as others to be authoritarian if they have a daughter, whereas the effect is close to zero if they have a son. These observations suggest that the gradual convergence in gender roles and the waning of unequal gender norms had a large impact on how people raise girls versus boys.
In addition to shaping expectations for the future lives of daughter and sons, gender roles also matter through their direct effect on the behavior of mothers and fathers. Fernandez, Fogli, and Olivetti (2004) have shown that having a working mom affects the gender attitudes of children – boys who grew up with a working mom are more likely to end up with wives who also work.
One could have expected that the rise in mother’s labor force participation in recent decades also affected parenting through the time constraint, i.e., because working moms have less time to interact with their children. However, the data suggest that this effect is swamped by other changes: as inequality has risen, mothers have increased both the time they spend at work and the time they spend interacting with their children, and the expense of home production and leisure.
Beyond parenting choices, there is the choice of becoming a parent. How will this change the state of the economy (for example the income distribution) for future generations? Where do we converge to?
Fertility choices can have a powerful effect on inequality if there are large fertility differentials within the population, i.e., if the poor have many more children than the rich (de la Croix and Doepke 2003). In that scenario, the poor are hard pressed to provide their many children with a good education, whereas the rich distribute their ample resources among a small number of descendants. In the data, however, fertility differentials have recently been falling for most countries, making this channel less powerful.
Instead, the big question is where average fertility rates will end up in the long run. In some countries such as Sweden and France, fertility rates have stabilized close to the replacement level of two children per woman. But in many others countries, including most of Southern and Eastern Europe and the advanced Asian economies, fertility rates are well below 1.5 children per woman, with no signs of a recovery. If sustained and not made up by immigration, such ultra-low fertility rates will have severe macroeconomic repercussions, including the fiscal challenge of caring for an aging population with few young workers to support them, and the gradual depopulation of rural areas. The United States used to be among the rich countries with relatively high fertility rates, but fertility rates have dropped during the Great Recession and have not recovered since.
The causes of ultra-low fertility are not completely understood. The trend to intensive (and hence costly, in terms of both money and time) parenting may play a role – the East Asian countries with the lowest fertility rates around the globe also have a particularly intense parenting culture. In recent work, Doepke and Kindermann (2019) have also pointed at the role of an uneven distribution of the burden of child care across genders. In countries where women get stuck doing most of the work in caring for children, women are also more likely to be opposed to having additional children, and fertility rates are low.
Entrepreneurship is an important driver of growth. How does parenting influence entrepreneurship? Does more inequality increase the willingness to take risk?
We looked at the relationship between parenting, entrepreneurship, and growth in some detail in our chapter in the Handbook of Economic Growth (Doepke and Zilibotti 2014). Empirically, there is clear evidence that risk-tolerant individuals are more likely to become entrepreneurs, and also that parental investment can shape children’s risk preferences (e.g., Zumbuehl, Dohmen, and Pfann 2013). More generally, entrepreneurship itself is highly correlated between parents and children – being the child of an entrepreneur increases the probability of being an entrepreneur oneself by 30-200 percent in various countries (Lindquist, Sol, and Van Praag 2015).
These relationships are certainly suggestive of a channel running from the economic environment (including inequality) to parenting, children’s entrepreneurship, and ultimately economic growth. However, the question of exactly what kind of economic environment will lead parents to encourage risk tolerance and risk taking in children is an intricate one.
In places where there is a lot of risk that is difficult to avoid (such as health risks in a country with little health care infrastructure, or accident risks in a place with dangerous roads), parents have an incentive to encourage some risk tolerance in children, simply to be able to function in such an environment without being consumed by fear. We believe that this explains why people in poorer countries, where overall risk tends to be higher, are more risk tolerant.
In contrast, if there are risks that children could steer clear from if they wanted to, such as consuming recreational drugs, joining a criminal gang, reckless driving of cars or motorcycles, or risky sexual behavior, parents may react by making their children more risk averse, so they don’t end up making choices that can harm them. We believe that this relationship can explain why within countries, individuals from well-off families tend to be less risk averse. If you raise your children in a rich neighborhood where kids are unlikely to get into serious trouble, parents can afford to encourage some more risk tolerance in their children. In contrast, in a tough neighborhood where children face serious risks that depend on their own choices, parents will be prone to instill risk aversion in their children to keep them on the safe path.
In practice, a lot of risk exposure is local, and in the United States we have recently seen increased residential segregation, so that the risk environment can differ a lot between poorer and richer families. Given the economic upside of risk tolerance, including entrepreneurship, this suggests that the transmission of risk preferences is another dimension where parenting interacts with inequality and social mobility. We are exploring the link of neighborhoods, risk exposure, and parenting in ongoing work with Francesco Agostinelli and Giuseppe Sorrenti (Agostinelli et al. 2019), and already found a lot of additional evidence supporting the notion that parents react to risk in the environment, and that this feeds back into the development of children’s preferences and skills.
Agostinelli, F., M. Doepke, G. Sorrenti and F. Zilibotti, 2019. “It Takes a Village: The Economics of Parenting with Neighborhood and Peer Effects.” Unpublished Manuscript, Yale University.
Alessandra Voena on Economics of the family in developed and developing countries
Alessandra Voena is Associate Professor in Economics at the University of Chicago. She is an applied microeconomist, working primarily in labor and also in development economics. Voena’s RePEc/IDEAS profile.
The main area of inquiry of my research is the economics of the family and it broadly studies the process of household decision making and its implications for economic policy. Since Becker (1991), the economics of the family has been an active research field. Recent developments combine economic models, which often feature a quantitative component, with data from a wide range of sources to study questions that are relevant for policy in developed and in developing countries.
Part of my research examines the process of household decision making and its implications for economic policy. I study whether household members behave cooperatively, whether they can commit to future actions or whether they face barriers to commitment, and whether decisions suffer from asymmetric information problems. I also study how the nature of these interactions shape the behavior of families over time, and in particular their savings, labor supply, and fertility decisions, their household-specific investments, and their educational choices. Ultimately, I want to learn how policies and institutions, both in developed and in developing countries, can affect economic outcomes by changing the family structure and how family members (e.g., husband and wife, parents and children) interact. In what follows, I describe a number of studies that are contributing to these goals.
Family decisions and government policy
In Voena (2015), I study how divorce laws influence intra-household decision making and hence household intertemporal behavior. During the 1970s and 1980s, most U.S. couples entered a legal system which allows each spouse to obtain a divorce without the consent of the other party (unilateral divorce) and to keep a fraction of the marital assets, independently of who holds the formal title to the property (equitable distribution of property). To capture the effect of this legal shift on household behavior, I build a dynamic model that captures the key aspects of these laws. In the model, the transition from mutual consent divorce to unilateral divorce introduces a limited commitment problem in marriages (Mazzocco, 2007; Chiappori and Mazzocco, 2017), because spouses can obtain a divorce without the consent of the other party. I exploit the variation in divorce laws over time and across states to study how these legal changes affected the endogenous variables of the model and to estimate the structural parameters of the dynamic model by indirect inference. The estimates indicate that wives’ weight in household decision making is substantially smaller than the husbands’ weight, and hence an equal division of property grants women more assets than a separate property regime. Also, introducing unilateral divorce in states that divide assets equally changes the intra-household allocation in marriage in favor of women and increases their leisure time. The counterfactual simulations suggest that divorce laws play an important role in shaping intra-household risk sharing and consumption smoothing in case of divorce. Recent studies have also explored the effect of divorce laws on welfare (Fernández and Wong, 2017), educational decisions (Bronson, 2016), and on marital sorting (Reynoso, 2018).
Models of dynamic household decision making with limited commitment have been shown to be consistent with the dynamics of intra-household allocations (Lise and Yamada, forthcoming). They can be used to study policy changes that are likely to affect family formation and dissolution together with other crucial policy outcomes, such as labor supply. In Low, Meghir, Pistaferri, and Voena (2018), we apply such a model to study the impact of welfare reform, and in particular of time-limited eligibility to welfare programs. We extend the framework from Voena (2015) by incorporating the decision to marry in a marriage market with search frictions. Such a decision, like the decision to divorce, is likely to be affected by changes in the generosity of the welfare system because single mothers are the most frequent recipients. Indeed, we use variation generated by the 1996 U.S. welfare reform to provide reduced form evidence showing that time limits led to a fall in welfare claims, a rise in employment, and a decline in divorce rates among low-educated mothers. Based on the estimates from the model, which reproduces the reduced form results, we show that, instead of relying on welfare single mothers work more, more mothers remain married, and some move to rely only on food stamps. In ex-ante terms, even after accounting for government savings, women are made substantially worse off by the reform.
In ongoing work entitled “Prenuptial Contracts, Labor Supply and Household Inve stments” (with Denrick Bayot), we revisit the limited commitment model to study the plausible outside options to marital cooperation. In particular, we examine couples’ choices of assets regime at the time of marriage in Italy. The majority of newlyweds (67% in 2011) choose to forgo the default community property regime and to maintain a separate property, in which each spouse gets to keep assets in his or her name upon divorce. We use restricted administrative data from the Italian Statistical Institute to document that households in which the wife doe s not work or works part-time and that have children are more likely to be in a community property marriage. To interpret these facts, we develop a model in which community property provides insurance for mothers who forgo labor market experience to specialize in home production. We show that in a dynamic model of risk sharing with limited commitment in which spouses make ex post efficient decisions and cooperate throughout the marriage, separation of property is the constrained efficient property division system. Hence, to explain why many couples choose community property, we depart from the standard setup and allow spouses to opt out of marital cooperation. We show that if non-cooperation is possible within marriage, separate property may no longer be the constrained efficient property division regime: couples may prefer to commit to an equal division of property if they anticipate that the allocation of assets will otherwise depart from the one that rewards spouses for their household-specific investments.
Like limited commitment, barriers to communication can influence the economic behavior of households and require a policy intervention. In an ongoing experimental study (currently in preparation under the working title “Maternal Mortality Risk and the Gender Gap in Desired Fertility,” with Nava Ashraf, Erica Field and Roberta Ziparo), we study whether health education programs can help overcome communication barriers that prevent the diffusion of information on maternal health risk from wives to husbands, and ultimately influence fertility outcomes.
Spousal disagreement over the desired number of children is believed to be a significant factor in slowing down demographic transitions in Sub-Saharan Africa, where fertility rates have remained high even as women’s desired fertility declines. Doepke and Kindermann (2016) also show that it has substantial implications on fertility rates in rich countries. We develop a cheap-talk model in which an initial gender gap in ideal fertility prevents effective communication between spouses about the costs of childbearing incurred by women. This friction is likely to further widen the fertility disagreement in environments where maternal health risk is high and imperfectly observed, and where men have fewer opportunities than women to learn about average and relative risk. To assess the importance of this channel, we design an intervention to experimentally vary exposure to information about maternal health risk to either the husband or the wife on a sample of approximately 500 couples in peri-urban Lusaka (Zambia). At baseline, husbands are less knowledgeable about maternal mortality and morbidity compared to their wives. When the husbands randomly receive information about maternal health risk, they report lower desired fertility and couples experience a sharp decline in the probability of having a child in the year following the intervention (a 46% reduction) and increase communication about family planning. Both spouses report improvements in marital satisfaction. Couples in which it is the wife who receives maternal mortality information do not exhibit a similarly consistent pattern of behavioral change. These findings indicate that understanding communication and information diffusion in the household can strengthen the efficacy of information campaigns and improve household outcomes.
Family decisions and institutions in developing countries
In developing countries, it is often the case that traditional institutions and culture, rather than statutory government law and policy, regulate family relations. Hence, traditional practices can have significant consequences on economic outcomes. An interesting and important example is polygyny (Tertilt, 2005; Rossi, forthcoming). Another example is inheritance: in Dillon and Voena (2018) we show that customary rules that prevent Zambian women from inheriting land in case of their husband’s death are associated with lower land investment (fallowing , fertilizer application, and labor-intensive tillage techniques) even while the husband is alive. Two of my recent papers examine the implications of the relationship between institutions and economic behavior for the design and the evaluation of economic policy.
In Ashraf, Bau, Nunn, and Voena (forthcoming) we explore the link between investments in education and the cultural practice of bride price, which is a transfer from the groom to the family of the bride and is widespread in Sub-Saharan Africa and parts of Asia. We develop a model of parental educational investment with two-sided matching in the marriage market (Chiappori, Iyigun, and Weiss, 2009), in which the custom of bride price compensates parents for the upfront costs of schooling. Because bride price raises the parents’ returns to educating a daughter, it introduces a systematic difference in average educational attainment between ethnic groups. Such a difference leads to heterogeneous responses to a decline in the cost of schooling. To test the predictions of the model, we revisit an important historical development projects, the Indonesia Sekolah Dasar INPRES school construction program. Under this program, the Indonesian government built over 61,000 primary schools between 1973 and 1978. Previous studies have found large effects of this program on male educational attainment and no effects on female educational attainment (Duflo, 2001). We show that there is crucial heterogeneity in the effect on females by bride price tradition, with only ethnic groups that traditionally engage in bride price payments at marriage increasing female enrollment in response to the program. Within these ethnic groups, higher female education at marriage is associated with a higher bride price payment received. For those girls belonging to ethnic groups that do not engage in this practice, we see no change in education rates following school construction. We replicate the same findings using survey and administrative data we gathered in Zambia, where we study another school expansion program that took place in the early 2000s and which had never been studied before.
In Corno, Hildebrandt, and Voena (2017), we study how aggregate economic fluctuations affect marriage markets — and especially child marriage — in economies where marriage payments prevail. In particular, we contrast Sub-Saharan Africa, where bride price is prevalent, and in India, where dowry is prevalent. In an equilibrium model in which parents choose when their children marry, transitory income shocks affect the age of marriage because marriage payments are a source of consumption smoothing, particularly for a woman’s family. As predicted by our model, we show that droughts, which reduce annual crop yields by 10 to 15%, have opposite effects on the marriage behavior of a sample of 400,000 women in the two regions: in Sub-Saharan Africa, they increase the annual hazard into child marriage by 3%, while in India droughts reduce such a hazard by 4%. In addition to improving our understanding of marriage markets in developing countries, these findings point to the importance of culture and institutions in influencing the external validity of natural experiments. They also highlight the value of economic theory in guiding empirical and experimental analyses in different contexts, to improve our understanding of the economic mechanisms behind empirical results.
In ongoing work with Lucia Corno, entitled “Selling daughters: age of marriage, income shocks and the bride price tradition”, we further explore the quantitative role of marriage payments as a source of consumption smoothing. We develop a dynamic life structural model in which households are exposed to income volatility and have no access to credit markets. If a daughter marries, the house hold obtains a bride price and has fewer members to support. In this framework, girls have a higher probability of marrying early when their parents have a higher marginal utility of consumption because of adverse income shocks. To isolate the role of the bride price custom for consumption smoothing, we estimate the model by exploiting variation in rainfall shocks over a woman’s life cycle, using a survey dataset from rural Tanzania. In counterfactual exercises, we show that parents heavily rely on child marriages and bride price payments to smooth consumption. Without credit markets, bans on these practices are costly for a daughter’s parents. However, ensuring access to credit limits the costs that parents face, making bans more likely to succeed.
The program chairs Marla Ripoll and Sevin Yeltekin along with their program committee have put together a fantastic program and recruited three plenary speakers that are sure to fill the auditorium seats: Laura Veldkamp, Emmanuel Farhi, and Jan Eeckhout. This year, we received 1,545 submissions, up 18 percent from last year. There will be 168 sessions with roughly 500 papers. Marla and Sevin have worked hard to increase female and non-US representation on the program, addressing past concerns that there is a lack of diversity of attendees. They have also included some new research areas that will surely impact research on economic dynamics. I fully expect that the meeting this year will be as successful as Mexico, in large part because the former SED President, Tim Kehoe, was an integral part of its planning.
Public Economics, the Macroeconomic Perspective, by Burkhard Heer
The market for graduate textbooks is not a large one in Economics, especially once you look beyond the foundational courses. But as graduate program have become more quantitative throughout the world, there seems now to be a space for more specialized graduate textbooks, and this one on macro public finance is an early example. In essence, it brings dynamic general equilibrium into the standard public economics course, or it expands standard DGE macroeconomics to public economics questions.
There are six main parts in the book. The first two introduce the Ramsey and overlapping generation models. The next four discuss in turn government consumption, income taxation, social security, demographics and debt, and finally public debt. Each topic is introduced with an overview of empirical facts, then it shows how to model within the Ramsey and/or OLG frameworks along with calibration and results. Gauss and Matlab code is provided. Empirical examples include countercyclical government spending, the Laffer curve, pension reform, and steady-state public debt.
The book is largely self-contained, although it helps to have been exposed to RBC and OLG models. The exposition is at the level of a budding graduate student and can be used as a self-study as well. The emphasis is more on the technical side, including solution methods, whereas there is less focus on intuition. Thus, it provides a good analytical background for further exploration of public economics topics, but the readers have to find themselves what the open issues are.