This is the paper we are going to present in Econ 206’s class on next Tuesday. Good luck for us all! Notes in PDF, and Paper.

Some Background:

The trade-off between quantity and quality is a much-discussed issue in economics. In recent decades, economists have increasingly turned their attention to behavior within families because of its direct implications for such diverse issues such as population growth, inter-generational transfers of wealth, human capital accumulation, and macroeconomic policy. In a pioneering paper written by Gary S. Becker (1960), an economic framework is built by analyzing the factors that determine fertility, in which children are viewed as a durable goods that yield income to parents. Becker maintains that the quality of children is directly related to the amount spent on them, and the number of children desired is directly related to income. Furthermore, many empirical studies performed in the past have demonstrated that quantity and quality of children within a given family often have a negative correlation. Based on this, the Becker and Lewis (1973) paper (that we will present) further explores the interaction between quantity and quality of children. Becker and Lewis explain why the quantity and quality of children are more closely related than any two commodities chosen at random”(page 279). An increase in the quantity of children raises the shadow price (marginal cost) of the quality of children (and vice versa) and it demonstrates that the observed income elasticity of demand with respect to quality of children exceeds income elasticity with respect to quantity, while at the same time the observed price elasticity with respect to quantity is greater than price elasticity with respect to quality.

This paper was published in a special volume of Journal of Political Economy (Vol 81, part 2: New Economic Approaches to Fertility, 1973). Other papers in the volume are also emphasized in the Becker and Lewis article regarding their perspective on children and their quantity and quality trade-off , both theoretically and empirically (such as Schultz, 1973, and Willis, 1973).

The goal of this paper is to tease out and examine the relationship between quantity and quality of children, and to derive and understand the income and price elasticities with respect to both quantity and quality. Overall, the paper argues that the crux of the interaction between quantity and quality of children is a result of the fact that the marginal cost of quality is partially determined by quantity, and the marginal cost of quantity is partially determined by quality. The two are inextricably linked.