Economic Naturalism

Each semester, drawing on Robert Frank’s idea, I ask my students to submit “Economic Naturalist Questions.”  My interpretation is that economic naturalist questions are questions in which we could use the benefit cost principle to provide a coherent answer.  I think the idea is most illustrative when we use “level” questions where we are discussing the quantity of some activity.

Here is one of the questions this semester: “Why do low income families have more children than wealthy families?”  This is a quantity/level question–how many children should I (we) have?  Moreover, this becomes an interesting question because the student has notice a pattern that need to be explained.  To answer the question let us first look at a “model” lower income family.  Having a baby has, of course, costs and benefits.  Let us imagine that the explicit costs and benefits of having children is similar for all families but allow opportunity cost to vary.

Consider the figure below:

Marginal Analysis of Fertility Choice

Marginal Analysis of Fertility Choice

The MC of having children is thought to go up as individuals give face higher and higher opportunity cost as they have more children.  For example–if I have one child I eliminate something that is of value to me that I no longer have time or energy for.  But I do not eliminate my favorite thing.  However, when I have the third or fourth child I am forced to give up things I value at higher levels.  Now MB could be drawn constant but I have drawn it as decreasing.  Seems like the benefits of an additional child would start to decrease at some point.  I will post this part of the story and return to explain the pattern in a further note.  According to this picture the parents would choose about 4 children b/c the MB exceeds the MC until that point. 

Let us now consider a second picture.  This picture is thought to represent the decion environment for a wealthier family. 

Fertility Choice Higher Opportunity Cost

Fertility Choice Higher Opportunity Cost

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