Showing papers by "Gary S. Becker published in 1988"

A Theory of Rational Addiction

Abstract: We develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time. Strong addiction to a good requires a big effect of past consumption of the good on current consumption. Such powerful complementarities cause some steady states to be unstable. They are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention. Our theory also implies that "cold turkey" is used to end strong addictions, that addicts often go on binges, that addicts respond more to permanent than to temporary changes in prices of addictive goods, and that anxiety and tensions can precipitate an addiction.

A Reformulation of the Economic Theory of Fertility

Abstract: An economic analysis of the linkages in fertility rates and capital accumulation across generations is developed considering the determination of fertility and capital accumulation in each generation when wage rates and interest rates are parameters to each family and to open economies. The model is based on the assumption that parents are altruistic toward their children. The utility of parents depends on their own consumption and on the utility of each child and the number of children. By relating the utility of children to their own consumption and to the utility of their children a dynastic utility function was obtained that depends on the consumption and number of descendants in all generations. The term "reformulation" was used because of the emphasis on dynastic utility model of altruism toward children and deriving the budget constraint and utility function of a dynastic family the model was applied to the Great Depression and World War II. The 1st-order conditions to maximize utility imply that fertility in any generation depends positively on the real interest rate and the degree of altruism and negatively on the rate of growth in per capita consumption from 1 generation to the next. Consumption of each descendant depends positively on the net cost of rearing a desdendant. Applying the model it is shown that the analysis is consistent with baby busts during the Depression and the war and with a baby boom after the war. The effects on fertility of child mortality subsidies to (or taxes on) children and social security and other transfer payments to adults were considered. The demand for surviving children rises during the transition to low child mortality but demand for survivors return to its prior level once mortality stabilizes at a low level. Fertility falls in response to declines in international real interest rates and increases in an economys rate of technological progress. Extending the analysis to include life-cycle variations in consumption earnings and utility fertility emerges as a function of expenditures on the subsistence and human capital of children but not of expenditures that simply raise the consumption of children. The path of aggregate consumption in demographic steady states does not depend on interest rates time preference or other determinants of life-cycle variations in consumption.

The Family and the State

Abstract: The immaturity of children sometimes precludes efficient arrangements between children and parents or others responsible for child care. The difficulty in establishing efficient relations within families provides the point of departure for our interpretation of the heavy state involvement in the family. The authors believe that a surprising number of state interventions mimic the agreements that would occur if children were capable of arranging for their care; many regulations of the family improve the efficiency of family activities. These interventions include subsidies to education and training social security and other old age support subsidies to births laws that limit access to divorce and the sale of children and laws that require parents permission for early marriage and other choices of children. Families that leave bequests can force children to repay parents for investments in human capital by reducing bequests. Therefore these families do not underinvest in childrens human capital. By contrast families that do not leave bequests often poorer families do underinvest in children; the state may subsidize schools and other training facilities to raise investments in children by poorer families to efficient levels. (authors modified)

Family economics and macro behavior.

Abstract: In this 1987 presidential address to the American Economic Association the author explores the contributions of the field of family economics to macroeconomic analysis. The focus is on family behavior as an active endogenous factor that both affects and is affected by the evolution of the economy. "Much of the time is spent on long-term economic growth although I also discuss short and long cycles in economic activity and the interaction between overlapping generations through Social Security transmission of inequality and in other ways....Many conclusions in these and presumably other macro areas change radically when family choices get the attention they deserve." (EXCERPT)

Fertility choice in a model of economic growth

Abstract: Altruistic parents make choices of family size along with decisions about consumption and intergenerational transfers. The authors apply this framework to a closed economy, where the determination of interest rates and wage rates is simultaneous with the determination of population growth and the accumulation of capital. Thus, they extend the literature on optimal economic growth to allow for optimizing choices of fertility and intergenerational transfers. The authors use the model to assess the effects of child-rearing costs, the tax system, the conditions of technology and preferences, and shocks to the initial levels of population and the capital stock. Copyright 1989 by The Econometric Society.