Abstract
We model parents’ fertility and child-raising spending decisions as a Tullock contest with budget constraints and prizes that depend on relative efforts. We show that if the consequences of failure and the intensity of competition are sufficiently high, some potential parents forego having children in the resulting equilibrium. Moreover, parents having children prefer to have only one child and allocate all of their resources to raising that child rather than have multiple children. The equilibrium is consistent with the recent East Asian fertility experience and, more broadly, shows that competitive pressure, when combined with a high degree of inequality or poor social protection, can lead to an overaccumulation of human capital and low fertility.
Similar content being viewed by others
Notes
One exception to this strand of literature is Kalwij (2010), who concludes that cash grants affected the timing of the births but not the total fertility in Western Europe.
Although Singapore is located geographically in Southeast Asia, we consider it to be East Asian because of its culture. In addition, mainland China is excluded from the discussion since its legal restrictions on fertility make unclear the extent to which its low fertility is from parental choice or government-imposed.
While investigating the effects of risk-aversion on the contest participants’ effort levels, Skaperdas and Gan (1995) show that budget exhaustion can occur in equilibrium if certain conditions on the class of success probabilities and utility functions they consider are satisfied. In this paper, we have taken a different approach and allow the utilities to depend on relative effort levels, as we find it more compelling in the current context.
Clark (2017) provides a survey of the relevant empirical evidence.
Those observations are tempered somewhat in mainland China owing to its political system and the lingering effects of cultural revolution.
As shown in Fu and Lu (2012), that probability arises out of a noisy-ranking contest model in which contestants are ranked according to their effort multiplied by a noise term that follows an extreme value distribution. It also is equivalent to the “best-shot ranking rule”, in which contestants are ranked according to their best performance in a number of independent trials.
The expected number of successful children is normalized to be one in our model. Thus, rather than think of the parents in the model as representing the entire population, it may be more appropriate to view them as a peer group of parents whose children compete for one slot.
For example, Anderson and Kohler (2013), Iga (1981), Marginson (2011), Sorensen (1994) and Tan et al. (2016) all observe that a degree from a prestigious university is necessary, and often sufficient, for success in East Asia. Existing labor market studies also confirm those observations. Van der Velden et al. (2007) show that Japanese workers’ earnings are correlated strongly with the rankings of their alma maters, but not with family backgrounds or acquired competencies, while the opposite holds for the Netherlands. Lee and Brinton (1996) find that the university ranking is important for obtaining prestigious jobs in Korea, but having higher individual abilities than other students from the same university are not.
Attitudes in Canada are even more striking. A 2018 Ontario survey showed that only 15% of the public thought that a 4-years university degree is necessary for success (Ontario Institute for Studies in Education 2018).
A number of scholars have extended the standard Tullock framework to incorporate non-constant success and failure utilities. For example, \(v_s\) depends positively on total effort in Chung (1996) and either positively or negatively in Damianov et al. (2018). The two-competitor model of Chowdhury and Sheremeta (2011) allows success and failure utilities to depend linearly on the competitors’ efforts. In all-pay auctions, Kaplan et al. (2000) consider prizes that depend on the bidder’s own bid as well as her type, while Sela (2017) considers two-stage auctions in which the prize in the second stage depends on the bidder’s own bid in the first auction.
The OECD defines poverty relatively, as earning, inclusive of government transfers, less than or equal to 50% of the median income.
The conditions needed for concavity of \(P(c, {\hat{c}})\) are given in Proposition A.3 in the Appendix.
We believe that it is reasonable to assume that the modal parenting behavior in developed nations does sacrifice one child for the sake of giving another child a better chance to succeed.
Our reliance on stationarity requires group size N to be the same at all periods, which may not be ideal in a model of fertility. As an alternative, we may interpret stationarity as holding only locally. To be more precise, we fix a particular period t and investigate the equilibrium behavior of only the couples who make their decision in period t, treating the decisions of couples in periods \(t-1\) and \(t+1\) as fixed. Stationarity is then required only to hold between periods \(t-1\), t, and \(t+1\), which is more plausible because the gap between the periods presumably is short.
When \({{\bar{N}}} = 3\), \(\frac{\ln \left( 2+\frac{2}{{{\bar{N}}}-2}\right) }{\ln (2)} = \frac{\ln (4)}{\ln (2)} = 2\). It drops to 1.17 when \({{\bar{N}}}=10\) and continues to fall to 1 as \({{\bar{N}}} \rightarrow \infty\).
References
Asian Development Bank. (2013). The social protection index: Assessing results for Asia and the Pacific. Manila: Asian Development Bank.
Anderson, T., & Kohler, H.-P. (2013). Education fever and the East Asian fertility puzzle. Asian Population Studies, 9(2), 196–215.
Angrist, J., Lavy, V., & Schlosser, A. (2010). Multiple experiments for the causal link between the quantity and quality of children. Journal of Labor Economics, 28(4), 773–823.
Baye, M., Kovenock, D., & de Vries, C. (1999). The incidence of overdissipation in rent-seeking contests. Public Choice, 99(3/4), 439–454.
Becker, G. (1960). An economic analysis of fertility. In Universities-National Bureau (Ed.), Demographic and economic change in developed countries. Princeton: Princeton University Press.
Becker, G., & Lewis, H. G. (1973). On the interaction between the quantity and quality of children. Journal of Political Economy, 81(2), S279–S288.
Black, S., Devereux, P., & Salvanes, K. (2005). The more the merrier? The effect of family size and birth order on children’s education. Quarterly Journal of Economics, 120(2), 669–700.
Bray, M. (2013). Benefits and tensions of shadow education: Comparative perspectives on the roles and impact of private supplementary tutoring in the lives of Hong Kong students. Journal of International and Comparative Education, 2, 18–30.
Bray, M., & Kobakhidze, M. N. (2014). The global spread of shadow education: Supporting or undermining qualities of education? In D. B. Napier (Ed.), Qualities of education in a globalised world. Rotterdam: Sense Publishers.
Cáceres-Delpiano, J. (2006). The impacts of family size on investment in child quality. Journal of Human Resources, 41(4), 738–754.
Chan, H.-L., Liu, C.-Y., & Chau, Y.-L. (2011). Prevalence and association of suicide ideation among Taiwanese elderly: A population-based cross-sectional study. Chang Gung Medical Journal, 34(2), 197–204.
Che, Y.-K., & Gale, I. (1997). Rent dissipation when rent seekers are budget constrained. Public Choice, 92(1/2), 109–126.
Che, Y.-K., & Gale, I. (1998). Caps on political lobbying. American Economic Review, 88(3), 643–651.
Choe, M., & Retherford, R. (2009). The contribution of education to South Korea’s fertility decline to ‘lowest-low’ level. Asian Population Studies, 5(3), 267–288.
Chowdhury, S., & Sheremeta, R. (2011). A generalized Tullock contest. Public Choice, 147(3/4), 413–420.
Chung, T.-Y. (1996). Rent-seeking contest when the prize increases with aggregate efforts. Public Choice, 87(1/2), 55–66.
Chung, T., & Mallery, P. (1999). Social comparison, individualism-collectivism, and self-esteem in China and the United States. Current Psychology, 18(4), 340–352.
China Institute for Educational Finance Research - Household Survey (CIEFR-HS). (2017). 2017 China family education finance report. Beijing: Beijing University.
Clark, A. (2017). Happiness, income and poverty. International Review of Economics, 64(2), 145–158.
Clark, A., Senik, C., & Yamada, K. (2013). The Joneses in Japan: Income comparisons and financial satisfaction. ISER Discussion paper No. 866.
d’Addio, A., & d’Ercole, M. (2005). Trends and determinants of fertility rates in OECD countries: The role of policies. Paris: OECD Publishing.
Damianov, D. S., Sanders, S., & Yildizparlak, A. (2018). Asymmetric endogenous prize contests. Theory and Decision, 85(3/4), 435–453.
Doepke, M., & Zilibotti, F. (2017). Parenting with style: Altruism and paternalism in intergenerational preference transmission. Econometrica, 85(5), 1331–1371.
Drago, R., Sawyer, K., Shreffler, K., Warren, D., & Wooden, M. (2011). Did Australia’s baby bonus increase fertility intentions and births? Population Research and Policy Review, 30(3), 381–397.
European Commission (2010). Private household spending on education and training. Final project report
Ermisch, J. (1988). Econometric analysis of birth rate dynamics in Britain. Journal of Human Resources, 23(4), 563–76.
Frejka, T., Jones, G., & Sardon, J.-P. (2010). East Asian childbearing patterns and policy developments. Population and Development Review, 36(3), 579–606.
Fu, Q., & Lu, J. (2012). Micro foundations of multi-prize lottery contests: A perspective of noisy performance ranking. Social Choice and Welfare, 38(3), 497–517.
Gauthier, A. (2016). Governmental support for families and obstacles to fertility in East Asia and other industrialized regions. In R. Rindfuss & M. Choe (Eds.), Low fertility, institutions, and their policies. Switzerland: Springer.
Gavious, A., Moldovanu, B., & Sela, A. (2002). Bid costs and endogenous bid caps. RAND Journal of Economics, 33(4), 709–722.
Goldstein, J., Sobotka, T., & Jasilioniene, A. (2009). The end of “lowest-low” fertility? Population and Development Review, 35(4), 663–699.
Iga, M. (1981). Suicide of Japanese youth. Suicide and Life-Threatening Behavior, 11(1), 17–30.
Jones, G., & Hamid, W. (2015). Singapore’s pro-natalist policies: To what extent have they worked? In R. Rindfuss & M. Choe (Eds.), Low and lower fertility: Variations across developed countries. Cham: Springer.
Jones, R., & Urasawa, S. (2014). Reducing the high rate of poverty among the elderly in Korea. OECD Economics Department Working Papers no. 1163.
Kalwij, A. (2010). The impact of family policy expenditure on fertility in Western Europe. Demography, 47(2), 503–519.
Kaplan, T., Luski, I., Sela, A., & Wettstein, D. (2000). All-pay auctions with variable rewards. Journal of Industrial Economics, 50(4), 417–430.
Kim, K. K. (2010). Educational equality. In C. J. Lee, S. Y. Kim, & D. Adams (Eds.), Sixty Years of Korean Education. Seoul: Seoul National University Press.
Klumpp, T., & Polborn, M. (2006). Primaries and the New Hampshire effect. Journal of Public Economics, 90(6/7), 1073–1114.
Kwon, H.-J. (2001). Income transfers to the elderly in Korea and Taiwan. Journal of Social Policy, 30(1), 81–93.
Lee, J. (2008). Sibling size and investment in children’s education: An Asian instrument. Journal of Population Economics, 21(4), 855–875.
Lee, S., & Brinton, M. C. (1996). Elite education and social capital: The case of South Korea. Sociology of Education, 69(3), 177–192.
Lee, S., & Choi, H. (2015). Lowest-low fertility and policy responses in South Korea. In R. Rindfuss & M. Choe (Eds.), Low and lower fertility: Variations across developed countries. Cham: Springer.
Lee, S. K. (2011). Local perspectives of Korean shadow education. Reconsidering Development, 2(1), 1–22.
Lee, S. Y., & Ohtake, F. (2018). How conscious are you of others? ISER Discussion Paper No: Further evidence on relative income and happiness (p. 1022)
Li, H., Zhang, J., & Zhu, Y. (2008). The quantity–quality trade-off of children in a developing country: Identification using Chinese twins. Demography, 45(1), 223–243.
Liu, J. (2012). Does cram schooling matter? Who goes to cram schools? Evidence from Taiwan. International Journal of Educational Development, 32(1), 46–52.
Marginson, S. (2011). Higher education in East Asia and Singapore: Rise of the confucian model. Higher Education, 61(5), 587–611.
McDonald, P. (2006). Fertility and the state: The efficacy of policy. Population and Development Review, 32(3), 485–510.
Megidish, R., & Sela, A. (2014). Sequential contests with synergy and budget constraints. Social Choice and Welfare, 42(1), 215–243.
Milligan, K. (2005). Subsidizing the stork: New evidence on tax incentives and fertility. Review of Economics and Statistics, 87(3), 539–55.
Nohara, Y., & Sharp, A. (2013). Japan’s elderly go on a petty crime spree: For many, benefits aren’t enough, families are gone, and hunger hurts. Bloomberg.
OECD. (2015). Pensions at a glance 2017: OECD and G20 indicators. Paris: OECD Publishing.
OECD. (2019). Society at a glance 2019: OECD social indicators. Paris: OECD Publishing.
Ontario Institute for Studies in Education. (2018). Public attitudes toward education in Ontario 2018. Toronto: Ontario Institute for Studies. in Education.
Perez-Castrillo, J. D., & Verdier, T. (1992). A general analysis of rent-seeking games. Public Choice, 73(3), 335–350.
Rosenzweig, M., & Wolpin, K. (1980). Testing the quantity–quality fertility model: The use of twins as a natural experiment. Econometrica, 48(1), 227–240.
Rosenzweig, M., & Zhang, J. (2009). Do population control policies induce more human capital investment? Twins, birth weight and China’s “one-child” policy. Review of Economic Studies, 76(3), 1149–1174.
Sela, A. (2017). Two-stage contests with effort-dependent values of winning. Review of Economic Design, 21(4), 253–272.
Skaperdas, S., & Gan, L. (1995). Risk aversion in contests. The Economic Journal, 105(431), 951–962.
Sorensen, C. W. (1994). Success and education in South Korea. Comparative Education Review, 38(1), 10–35.
Sorger, G., & Stark, O. (2013). Income redistribution going awry: The reversal power of the concern for relative deprivation. Journal of Economic Behavior and Organization, 86, 1–9.
Sugie, N. F. (2017). When the elderly turn to petty crime: Increasing elderly arrest rates in an aging population. International Criminal Justice Review, 27(1), 19–39.
Tan, P. L., Morgan, S. P., & Zagheni, E. (2016). A case for “reverse one-child” policies in Japan and South Korea? Examining the link between education costs and lowest-low fertility. Population Research and Policy Review, 35(3), 327–350.
Toulemon, L. (2011). Should governments in Europe be more aggressive in pushing for gender equality to raise fertility? The first “YES”. Demographic Research, 24, 179–200.
Tullock, G. (1980). Efficient rent-seeking. In J. Buchanan, R. Tollison, & G. Tullock (Eds.), Toward a theory of the rent-seeking society. College Station: Texas A&M Univ. Press.
van der Velden, R., van de Loo, P., & Meng, C. (2007). University and college differences in the returns to education in Japan and the Netherlands. In J. Allen, Y. Inenaga, R. Velden, & K. Yoshimoto (Eds.), Competencies, higher education and career in Japan and the Netherlands. Higher education dynamics (Vol. 21). Dordrecht: Springer.
White, K., & Lehman, D. (2005). Culture and social comparison seeking: The role of self-motives. Personality and Social Psychology Bulletin, 31(2), 232–42.
Whittington, L. A. (1992). Taxes and the family: The impact of the tax exemption for dependents on marital fertility. Demography, 29(2), 215–26.
Whittington, L. A., Alm, J., & Peters, H. E. (1990). Fertility and the personal exemption: Implicit pronatalist policy in the United States. American Economic Review, 80(3), 545–56.
World Bank (2006). Social safety nets in OECD countries. Social Safety Nets Primer Notes, No. 25. Washington, DC: World Bank.
Yoon, S.-Y. (2016). Is gender inequality a barrier to realizing fertility intentions? Fertility aspirations and realizations in South Korea. Asian Population Studies, 12(2), 203–219.
Zhang, J., Quan, J., & van Meerbergen, P. (1994). The effect of tax-transfer policies on fertility in Canada. Journal of Human Resources, 29(1), 181–201.
Zhang, Y. (2013). Does private tutoring improve students’ National College Entrance Exam performance? A case study from Jinan, China. Economics of Education Review, 32(1), 1–28.
Acknowledgements
We have benefited greatly from discussions with Eric Fong, Qiang Fu, Li Gan, Mark Rosenzweig and Junsen Zhang. We would also like to thank the anonymous reviewers and William Shughart II for their valuable comments and editorial suggestions, as well as Weili Ding, Hanol Lee, Steven Lehrer, Eric Set and Fan Yang for their helpful comments on the earlier version. This paper was completed while Maxwell Pak was visiting NYU Shanghai, and he is grateful for their hospitality and financial support. Support from China National Natural Science Foundation (Grants #71403217 and #71874144) and China’s Ministry of Science and Technology (Grant #G20190023006) is also gratefully acknowledged.
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Electronic supplementary material
Below is the link to the electronic supplementary material.
Rights and permissions
About this article
Cite this article
Xu, B., Pak, M. Child-raising cost and fertility from a contest perspective. Public Choice 186, 9–28 (2021). https://doi.org/10.1007/s11127-019-00751-y
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11127-019-00751-y