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You are on page 1of 9

This note goes through the mathematical models of the chapter. These relate to three

of the main hypotheses of the demographic transition. These are (1) The demographic

transition was caused by increases in income; (2) the demographic transition was caused

by declines in mortality; (3) the increased demand for human capital. These three are

covered in the following. The note is best read in conjunction with Galors book.

1.1

The central hypothesis is that the decline in fertility observed in the late 19th century

was caused by increased income due to the industrialization. The following model shows

that this result is not theoretically robust. Consider a consumer who obtains utility from

consumption (c) and surving children (n):

u=

ln n + (1

) ln c

c = (1

where

n) y;

is the time cost associated with raising a child and y is the income earned if

The utility function can be written:

u =

ln n + (1

) ln ((1

n) y)

u =

ln n + (1

) ln (1

n) + (1

) ln y

1

+ (1

n

1

1

) = 0

1

= (1

n

n) = (1

(1

n =

1

) n

n =

The number of children is unrelated to income in this model. Thus, theoretically

we would not expect that the opportunity cost of children (related to income growth)

necessarily plays a role in the timing of the fertility decline.

1.2

This hypothesis suggests that the decline in infant and child mortality that preceded the

fertility decline is a plausible explanation of the onset of the demographic transition. The

hypothesis can be illustrated in the framework of the previous sections by making the

number of surviving children a function of the probability of surviving infancy

and the

n = nb :

Let utility maximization problem be the same as in the previous subsection. Therefore,

the solution for n is:

n=

nb =

It is seen that an increase in

absence of uncertainty, there is, however, no eect on the surviving number of children.

2

Thus, the central prediction is that higher mortality rates (lower ) leads to higher fertility

rates, whereas the number of surviving children is unchanged.

1.3

The second phase of industrialization witnessed a signicant increase in the demand for

human capital. The increased demand for human capital led families to invest in the

education of their children according to this hypothesis. Thus, the argument is that the

increased demand for human capital led to a quantity-quality trade-o.

The idea can be illustrated by considering the following utility maximization problem:

u = (1

) ln c + ln n +

ln h;

< 1. The

y(

where

e) ;

The budget constraint is then:

yn (

where y (

e) + c

y;

h = h (e; g) :

which is an increasing, strictly concave function in e (he > 0, hee < 0) and decreasing, strictly convex in gthe rate of technical progress (hg < 0; hgg > 0): The following

assumptions are made:

lim he (e; g) = 1:

e!0

lim he (e; g) = 0

e!1

h(0; g) > 0:

The eect of g is an obsolence is eect. Technological change means that some education

is made obsolete. Further heg (e; g) > 0.

The utility maximization problem can be rewritten as:

maxu = (1

e;n

(1

) ln ((1

n(

) ln y + (1

e) y) + ln n +

) ln(1

n(

ln h (e; g) =

e)) + ln n +

ln h (e; g) :

1

1

@u

= (1

)

( ( q + e e)) +

= 0:

q

e

@n

1 n ( + e)

n

1

1

@u

=

he (e; g)

n e = 0:

@e

h (e; g)

1 n ( q + e e)

The solution for n is:

n=

ee

1

he (e; g) =

h (e; g)

1

1

n(

e e)

n e:

1

he (e; g)

h (e; g)

1

he (e; g)

h (e; g)

1

he (e; g)

h (e; g)

e

h (e; g)

1

1

=

1

q + ee

ee

e

q

ee

1

e

e

+ e

he (e; g) ( q +

e e)

e) :

e = e(g; ;

n =

):

e e(g;

e;

q)

To establish this we dene the implicit function as determined by the necessary rst

order condition:

G (e; g; ;

h (e; g)

he (e; g) (

e) = 0

limG (e; g; ;

) < 0

lim G (e; g; ;

) > 0

e!0

e!1

This follows from the fact that as e ! 0,he ! 1 (and h(0; g) > 0). Further, as e! 1,

h (e; g) will converge at a positive value (if strictly increasing, it will go towards innity)

and he (e; g) converges to 0.

Further, we can establish that:

@G (e; g; ;

@e

= (1

he (e; g)

)

hee (e; g) (

he (e; g)

5

e)

hee (e; g) (

he (e; g)

e

e) > 0:

Since 0 <

< 1 and hee < 0: Thus the G(:) function is strictly increasing in e between

values of G(:) less than or greater than zero, and by the intermediate value theorem a

solution exists for e at which G(:) is exactly zero.

The intermediate value theorem says:

Theorem 1 Let f be a function continuous on [a,b] and assume that f (a) and f (b) have

opposite signs. Then there is at least one c 2 (a; b) such that f (c) = 0:

In our case, we have that the function has negative values when e is close to zero and

positive values for large values of e. Thus, we can let a be close to 0 and b to some large

enough value where the function has become positive (which it will because it is strictly

increasing). This implies that a value of e > 0 will make G(:) = 0:

Given this we can now sign how this value of e responds to the other parameters in

the model by simply using the implicit function theorem. Recall that the average product

of a strictly, increasing and concave function decreases with the value of the independent

variable. In our case, this means:

h

e

@e

ehe

h (e; g)

<0

e2

This is used to establish the sign of the derivative wrt

below:

@G (e; g; ;

@g

hg (e; g)

heg (e; g) (

@G (e; g; ;

@

@G (e; g; ;

@ q

=

;

he (e; g) (

)

e) < 0

he (e; g) < 0:

e) < 0

above formula for

@G(g; ;

@ q

q ; e)

@G (e; g; ;

@ e

= h (e; g)

he (e; g) e > 0:

Theorem 2 Let G (x1 ; x2 ; :::; xk ; y ) be a dierentiable function around the point ( x1 ; x2 ; :::; xk ; y ):

Suppose further that

G (x1 ; x2 ; :::; xk ; y ) = c

@G (x1 ; x2 ; :::; xk ; y )

6

=

0:

@y

Then the partial derivative of xi around the point can be found as:

@y (x1 ; x2 ; :::; xk )

=

@xi

@xi

@y

We next apply the implicit function theorem to get the partial eects on the optimal

level of e (corresponding to y in the theorem).

@e

=

@g

@G (e; g; ;

@g

@e

=

@

@G (e; g; ;

@

@e

=

@ q

@e

=

@ e

@G (e; g; ;

@ q

) @G (e; g; ;

=

@e

@G (e; g; ;

@ e

) @G (e; g; ;

=

@e

) @G (e; g; ;

=

@e

) @G (e; g; ;

=

@e

>0

>0

>0

< 0:

These results are summarized in Galors Lemma 4.1. He also derives expressions for

the eect on the number of children which are easily obtained using the above results;

7

n=

e e(g;

e;

q)

e @e

@g

@n

=

@g

@n

=

@

@n

=

@ q

The eect of

e e(g;

e;

q )]2

e;

q )]2

e @e

]

@ q

; e;

q )]2

e @e

@

e e(g;

[1 +

[

e e(g;

< 0:

<0

< 0:

negative:

@n

=

@ e

1.3.1

[e +

[

e e(g;

e @e

]

@ e

; e;

q )]2

@e e

]

@ e e

e e(g; ; e ; q )]2

e[1 +

q

< 0:

To illustrate the "human capital model", we can use the following function taken from

Lagerlf (2006):

e

h (e; g) =

For simplicity, we assume

e+

ee +

= 1 (and

+g

then becomes:

h (e; g) =

e+

e+

q

q

+g

The model predicts that increased g leads to increased e and decreased n, and using

the rst order condition for utility maximization, the positive solution to e is:

e=

p

g (1

g^ =

(1

which ensures e

0: It is easily

seen that this function is increasing in g the rate of technological growth, and that n is

decreasing in e and hence g:

References

[1] Lagerlf, N.-P., 2006. The Galor-Weil model revisited: a quantitative exercise. Review

of Economic Dynamics 9(1), 116-142.

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