Inferior goods are goods whose consumption of or demand for drops with an increase in income levels in the market, other factors remaining unchanged. For instance during the 1990's demand for coarser cereals (a staple food of the poor) had dropped and picked up simultaneously for 'superior' cereals like rice and wheat. This prompted analysts to term 'coarse cereals' as inferior goods. The term 'inferior' does not necessarily mean that the product is inferior in quality. With a sustained campaign that focused on the 'superior' qualities of coarser cereals demand seems to have picked up with the richer people. Anecdotal evidence is available in the form of increasing varieties of ready food products made of coarser cereals which are essentially marketed to the 'better- off' category of people. the data for this needs to be checked though as some might attribute the increased demand and consequent higher prices due to greater demand for cattle feed!
A more interesting debate has been reopened recently with Bryan Caplan in his book " Selfish reasons to have more kids: Why being a great parent is less work and more fun than you think". Caplan argues that the cost of children would be less if parents didn't try to 'overinvest' in children. Such over-investing makes parents less happy and children more expensive according to Caplan. Reducing such investments on children would make them less expensive and hence demand for children should increase (a sort of substitution effect). Betsey Stevenson points out that a fall in price of children would have a substitution and income effect. The income effect as seen by data ( check the Freakanomics site for some interesting data - http://www.freakonomics.com/2011/06/10/the-rich-vs-poor-debate-are-kids-normal-or-inferior-goods/) is negative. People on an average tend to have fewer children as income levels have increased. Such data has to be controlled for other factors such as tastes and preferences to get a 'ceteris paribus', picture. The cross section (across countries) and time series data adjusted for inflation shows a strong negative correlation between per capita income levels and fertility rates (average number of children per woman). Does this mean that there is a substitute that is more preferred to children as incomes increase? Two important explanations for this trend is to be found in a) increasing opportunity costs and b) desire for higher standard of living. With increasing income levels the opportunity cost of having children increases. So there is a clear choice made here. But why not use the increased income levels to hire 'nannies' to take care of your larger number of children while you continue to work. This could reduce the opportunity cost and you could still have fun with more children. But then in a competitive world where demand is not independent parents try to ensure that their children have the best care , education , training etc all of which costs more ( over-investing) . Reduction of such investment is tough when you live in a comparative world where your utility is driven not just by your consumption but by how much you consume more than your neighbour.
More the children less the other comforts such as a nice house or a car etc. It looks like standard of living (as defined by more consumerist benefits) is a clear choice over children as income increases.
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The excerpt given about children being inferior goods seems to be from the perspective of the upper class and middle classes of society. In their view, children are inferior goods because the more children you have, the lesser you would spend on each of them. On the other hand, if you have just one kid, you would invest a lot in that kid, ths making it more expensive and less demanded. But when seen from the perspective of the people of the lower strata of society, they often prefer to have more kids so that they have more earning members in the family, or simply put, more helping hands.
------ Meghana and Jane
Leaving aside the ethics aspect and focusing on the economics of children as inferior goods, it's interesting to see how there is a risk that the parent might not actually end up getting returns in the economic sense. For instance, the child may grow up to be successful, but may not necessarily be principled enough to see that the parents are taken care of.
So, based on the (unlikely) assumption that the parents are rational and detached, and look at children only in terms of what they can get in the future from investing in them, we might say that children are, rather than inferior goods, potential risks. Or, perhaps, potential windfalls.
It'll be interesting to see what might happen if all parents across the world start following this logic. People are going to stop having kids (reduced population) as they get richer. This could lead to population concentration, and the poverty cycle. More poor, less rich.
All I can say is, I hope my own parents never thought so much.
I find these comparison interesting and rather offensive at the same time. Children can never be commodified. It would be generalising too much if we say that as income levels rise, the number of children fall - or fertility rates fall. This is not so in real life as it all depends on religious and personal beliefs.
Also, over the years, the average age of marrying couples has increased and many women have trouble conceiving at these ages. Thus many of them are advised to have less children for the sake of
Even if we assume an inverse relation, I don't think it'd be appropriate to give 'opportunity costs' as a reason instead of the many socio-economic factors (two of which I mentioned above.). Besides, if one can treat children as inferior goods, why not treat them as potential resources? As a form of investment which would yield returns in the future?We can't because we do not know if they would yield anything at all.
Also, I do not understand why Caplan assumes that having less kids would necessarily imply 'over-investment'. And why is taking good care of one's children even called 'over' investment? If a consumer is able to afford a better, he is not said to have 'over' spent his money. Similarly, this is not over investment. And the contention that our utility is also derived in consuming more than our neighbour is logically fallacious and subjective at best.
I would say that although interesting, this comparison is best dismissed as logically unsound.
Aastha Bhansali
*this comparison
*sake of their own health.
Every parent has a desire of seeing their children as a successful person in future. For this, they used to invest money in their education, care, and their daily needs. According to me, parents used to see this investment as their future savings because in their old age, when they would have been retired, their children will take care of them. So, we cannot consider children as an inferior good on the basis that those who have less children inspite of high income levels consider children as an inferior good. They might be other reasons also behind less children that parents want to give their more time and care to their children for their healthy growth.
Raghuveer Singh Meena
Though Caplan's theories sound interesting, one fundamental question that he fails to answer is whether 'over investing' is justified if the child yields higher returns.Therefore, if the child yields higher returns, shouldn't it just be termed 'investing' ( and 'sound investing' at that) and won't the desire to have more children increase because of that (utility being greater than price here), irrespective of income? Also, are we talking about only monetary investment here (which is quantifiable) or other aspects like time, patience etc? The main issue with Caplan's theories is the uncertainty and lack of universal applicability of the theory. Though the 'keeping up with the Jones's' approach or demonstration effect when it comes to children certainly holds true, more so I guess in the Indian context of life. Debanjana.
Low-income families often see a child as an investment, who will increase the family income and reduce the burden of parents. Also, as income levels increase, parents are more likely to be better educated and aware of the social and economic costs of having more children (overpopulation)
Considering the argument of increased opportunity costs, it may be so that parents feel they should raise children on their own and spend “quality time” with them instead of simply hiring nannies, which though economically efficient, is not morally correct.
If we look solely at the relationship between income and fertility rate it seems that children really are inferior goods. Rich families do have fewer children.
However this theory rests on the assumption that all the children are of equal value. When Bryan Caplan talks of "over-investing" in children he does not factor in that more expensive children may have a higher value. A parent investing in a child and giving it a good education has the hope (if not assurance) that this child wll grow up and be equipped to take care of his parents. In a poorer family, the numerous children they have will not be given as good an education or training and may be able to provide less financial support to their parents.
Preposterous as it sounds, I belive that parents are making the unconscious choice of forgoing a larger number of "inferior children" in order to have a fewer number of "superior children."
Firstly, children are not “goods”. The reasons for having children are very different from reasons for buying commodities. Therefore it is hard to justify the inverse relation between income and number of children through opportunity cost and other economic standards.
But if we have to justify the decrease in number of children with increase in income, it is probably because of paucity of time. Women who are educated and working, have to spend more time on work so they may not be willing to have children as opposed to poorer women who are unemployed or work only part time.
Also richer people are more inclined to pay more attention to education and general well- being of their children. So if they cannot mange to look after them up to their own standard of expectations they do not want to have children at all.
-Ravneet
I would like to mention reasons why this theory holds good:
1) If the income increases (and both parents are working), they would have lesser time to spend with their children, hence prefer having lesser number of children. Nannies are an option, but firstly nannies do not extend parental love, also nannies have to be paid heavily (as in the case of USA, and more recently in India as well). So considering the above factors, if income increases, the children per household would decrease.
2) In the early 1900s, when the income level wasn't so high, parents wanted to have more children, so that they would be taken care of in their old age. Generally the women did not work, hence they could take care of the children, and children helped them in household work, and took care of the parents in their old age. Hence the return on investment(on children) was high, considering the fact that there was less effort and less income. Nowadays, because of increased income, parents do not see the need for children to take care of them in their old age, and taking care of them is more difficult (hectic jobs), hence there is more income and more effort. So the return on investment (on children) is low.
3) With more women working, if they had more children, they would need more of maternity leave (without losing pay), and generally most companies provide maternity leave only for two children. Also, having many kids could lead to a break in the woman's career.
4) Also, from a subjective point of view, parents have started realizing that spending more on a child is better than spending less on many children
(more luxuries per child)
Hence, socio-economic factors influence the need for having children, and to conclude, when income increases, demand for children decreases.
The post says- "Reducing such investments on children would make them less expensive and hence demand for children should increase." By reducing investment on children, treating them as commodities and increasing the demand for them, what is the point? Won't there then be children who aren't equipped enough in terms of the facilities that they could have gotten had they been part of single-child or two-child families?
Firstly, I think people don't have so many children today because of the time and effort it demands. It is all very well to say that there are nannies to take care of them but in spite of increased incomes, it doesn't make any sense to have more children and spend extra on nannies. I don't think it is wrong in wanting a higher standard of living and giving exactly that to the one child that you have. Also, there are fewer children in the middle and upper classes as they invest in them to a large extent, as the post already mentions. For instance, before I left for NLS, my mother told me that I was her greatest investment. When I asked her if she was sure of returns, she said that she hoped there would be, both for me and my parents. Personally, I think that over-investment isn’t the right term to use.
Secondly, there are more children in the lower strata of society as they think that more people means more income in the future, which may or may not be true. But, essentially, it only increases expenditure. The way different classes approach the idea of children is different i.e. the upper classes think that spending properly on fewer children will yield more returns while the lower classes think that more leads to more and it has nothing to do with children being ‘inferior goods’.
For me personally, the comparison seems to be between having more Marutis versus just 1 mercedes. I agree with nayantara's point here. The children of richer families are perhaps superior in themselves because of the care they've got. In my view, this wouldn't be called an over-investment, this is just an investment in a better "good". Now while some people may say that buying more Marutis makes sense, that would be because they want more cars instead of wanting a better car. So children in general are not inferior goods, they're normal goods with perhaps different classes or segments, one of which may be preferred over more of the other.
An increase in income level obviously implies more time spent working. In families with both parents working, the income levels will be higher still. Thus, with the parents spending so much time outside the home, it is rather impractical to have many children. Though nannies can obviously be hired, they cannot provide the same love and support as the parents can. Hence, it makes more sense to have fewer children and devote all your time to bringing them up as well as you can, than have many children and not be able to devote enough attention to any one of them. Thus, though the choice here seems to be more comforts over children, it could in fact be providing better care to fewer children as opposed to less care for many children. Also, in the Indian context, the decline of the joint family system means lesser family support in bringing up the children. Thus, parents might feel incapable of handling too many on their own.
Parents of higher income families expect their children to be educated and conditioned to take up a job of a similar calibre as them. Since such jobs requires further quality education, they invest large amounts of money in order to allow them to take up skilled labour and similar occupations. This involves potentially exorbitant costs, which when taken into account, influence their decision to have less children. Quality, so to speak, not quantity. In the case of lower income families, as has been previously mentioned, the parents simply need more hands to contribute to (probably) physical labour and ensure that at least one of their children will provide them with a secure situation in their old age. For this reason, the lower income families tend to have more children.
Children can't really be termed as inferior goods on the sole basis that their demand decreases with increasing levels of income. The richer families prefer to have lesser children so that they can instead invest more on them and provide them with higher standards of living, better education, etc. This would not have been possible had the family had more children to take care of. Meanwhile, the poorer families tend to have more children because they view the children as helping hands (for example, to work on agricultural farms) and bring greater income to the family. Other reasons could be that because of rise in incomes which is mainly seen in nuclear families where both the parents are working it is not really a good option for them to have more children as they do not have much of free time to spend with them. Another point (a vague one) which I'd like to say is that the poorer families do not have much knowledge of contraceptives or family planning and such and so they end up having more children.
Caplan argues that parents are unhappy when they spend more on their child. However, if the child goes on to do well in life, then this investment will never be considered wasteful by the parents, for their investment has reaped high returns in the form of their successful child who will make them proud. In fact, many parents would want to spend more on their kids, hoping that their children will prosper. Thus, in my view, Caplan's argument does not hold good.
Also, I would like to elaborate on the reasons why children may be considered 'inferior' goods. Because most richer countries are inadvertently those which are more egalitarian (i.e. more work opportunities for women), it follows that women in such countries may defer pregnancy till their mid-30s or 40s, which is when their chances of bearing children diminishes greatly. Therefore,even if a couple were to want more kids, it may not be possible for them till they are financially stable ( till they have cleared their debts ) and hence this is another reason why people in these countries prefer less children.
Firstly, income is not the only incentive/disincentive behind having children. The blanket statement that children are inferior goods does not apply in a lot of cases. Brad Pitt and Angeline Jolie (with 6 children at last count) are only the tip of the iceberg. Culture, education and inexorable personal choice influence the decision to have children too.
WHY richer families seem to have lesser children is this. It can be presumed that women from richer backgrounds have a certain advantage with regard to their level of education. It also works the other way around. A better education would imply more access to contraceptives, greater knowledge about population explosion, but mostly, a different approach to children altogether.
The poor would generally view an additional child as an extra source of income, whereas an educated woman would, on some level, beyond all her joy, view an additional child as the reason behind her spending time away from her job, or as a reason for slowing her down.
Instead of spending divided time and money on many children, even if they can afford it, the rich and educated may choose to spend all their attention, time and money on a single child. This would not be in the hopes that the single child would earn them better 'returns', but purely in terms of how they feel about children and family sizes.
I do not know if it would be sensible to consider the problem at hand so simplistically,as in terms of rich and poor. The main countries in consideration, where we have seen notable changes in fertility rate in the 'Gapminder's Graph', have shown two major changes in their demographic structure in the presented timeline. By these 'changes' I mean the rapid growth of a salaried middle class(many of whom have incomes of more than $150 a month) and a huge corpus of 'urban poor'.
Taking the case of India, this middle class is not only limited to the urban areas, but with the expansion of welfare facilities to semi-rural and rural areas,we have seen their growth in the said areas as well.
Considering these two classes, we may find two surprising trends. Firstly, although falling within the broad category of poor(and thus conducive to more children), the urban poor do not have a high fertility rate. Secondly, regarding the fertility rates of the middle class, a clear rural-urban bias exists.
We must remember, although the Graph shows a steady negative correlation between India's GDP growth and fertility, it would be simplistic to assume that, fertility rate has declined because people in general have become richer. I am not disputing the fall in fertility rate, my problem is with the assumption that the people in general getting richer part, as the increase in India's GDP has been legendary for being the product of a very small section of its population.
What I mean to say is, the decision to have a child is not a function of the sole factor of 'investment'. A lot more is involved. We have to take note of, inter alia, whether the family is agrarian or employed in industries, who decides when to have a child: the mother or the family of the husband(the latter being the case in many "rich" rural middle class Indian families), and the effect of government policies on population capping(which has taken hold on the rural poor).
In conclusion, it seems to me that considering children as inferior commodities, or considering children as commodities with only an economic value and no social value whatsoever is an example of over-assumption and over-simplification.
i do not agree with the argument that children are inferior goods for two main reasons.
1)The opportunity cost of having children is not a valid point because children are an investment for the future as well as the present joy in having children could outweigh the above said opportunity costs
2)The high standard of living does not count because there are lots of rich parents who spend a lot of money (which they could have spent on luxuries) on hospital treatments trying to have children.
We believe that the concept of inferior goods has been explained in a very interesting way in the post. We agree with the idea that children are inferior goods. Two more reasons that according to us may contribute towards this phenomenon are:
Firstly, the higher levels of awareness and education that correspond to higher levels of income. Exposure to family planning programmes and knowledge of various methods of contraception - as well as the affordability power to procure such methods - contribute towards the richer individual's desire to have less children.
Secondly, it is a common practice for poorer couples to have more children because of the need for more "helping hands" in the family. The same train of thought is not followed by richer families, primarily because they can afford labour as and when it is required, and because they recognize that children are long-term investments and prefer educating their children rather than coercing them to work straight away.
Radhika and Arunima
I don't think this theory can be applied directly to the Indian context. The Indian poor have more children mainly because they see children as helping hands in the family. Another reason the lower class have a lot of children is the desire to have a male child. So some families keep having children until a healthy male child is born.
Among the middle class, it is equally common to see families having one or two children. For people who can afford it, having a single child, or two(or three) children is just a matter of personal choice. Some parents believe they should have one child and give him or her the "best" facilities, while others believe their children should grow up with siblings.
I think the choice to have lesser children has more to do with the level of education. With higher literacy levels, people become aware of the population crisis in the country and the cons of having too many kids. If the poor were educated and made to understand that more children does not necessarily mean a higher level of family income, they would perhaps have lesser children too.
Also, as someone has mentioned in a previous post, there is found to be an inverse relationship between wealth and fertility levels. So there are a lot of poor people who are having children simply due to high fertility levels and lack of access to contraception, while many rich couples are spending lakhs on fertility clinics and treatments!
Dealing with kids as economic commodities is a frivolous way of looking at them.
Children are a very delicate subject to touch upon from a purely monetory perspective. There are a number of factors to look at while seeing why a 'rich' couple would have lesser kids than a 'poor' couple. Excluding factors like religious or social backgrounds, economicics can probably explain this phenomenon to a good extent.
1.What are the 'returns' on children? Is there any sort of social or moral guarantee that they'd help their parents?
2.It is a possibility that more wealth or income allows for better recreational activities and hence fewer kids?
3.Spending on education etc can be seen as sunk costs rather than investments-again for the fact that there can never be a right prediction on their futures.
4.An inferior good is one whose consumption decreases. Are children 'consumable'?
5.There certainly exists no market for children, thus there shouldn't be a demand per se.
On the whole, in my opinion, there shouldn't be any tangible relation between income levels and number of children.
i think that in case of an inferior good, it can be said that as income increases, the amount of money that you want to spend on that good decreases as you shift the same to some other superior good. however, in the case of children, this may not be the case.even in lower income families, parents try to provide their children with all possible goods that they may need to progress in life.they spend a good part of their income on their children no matter how many the have. as income increases, people come in contact with education, social surveys, awareness campaigns etc and realise that they will be able to provide a better standard of living to their children if they have less no of children. however, they will still spend a substantial amount of their income on their children, probably more than earlier. the only difference is that instead of being spread over many children,it is going to be restricted to 2-3. therefore, looking at it from an income perspective, children may not be strictly inferior goods.
It is important to keep in mind that while there is a negative correlation between income and the number of children, this may be influenced by factors other than opportunity cost. A major reason that richer parents tend to have less children is that their professional lives keep them too occupied to effectively bring up their children. The question of hiring nannies is not always a feasible solution as there is a prevailing opinion in society that one ought to give sufficient time to one's own children and that the trend of hiring nannies is a disturbing one. Thus, there is kind of demonstration effect in this regard where one wishes to have children only if one can spend sufficient time with them. This is another factor which might cause this correlation, and thus one cannot conclude entirely that children are inferior goods.
there are fundamentals that must be taken into consideration. goods are essentially entities produced by a party that would have use for another. if children were 'produced' for the benefit of others, then indeed, all the questions of them being inferior or otherwise appear.
The debate as to whether children are inferior goods or not assumes that they are commodities, which in my opinion is absurd. This debate should never have arisen in the first place since you cannot treat children as goods that can be bought,substituted, disposed off.
Caplan's theory assumes that the demand for children would increase if parents didn't over-invesst in children, something like a substitution effect. But what can be considered as a substitute for a child? Betsey's argument just seems to be a convenient way of debunking Caplan's theory.
Some may argue that children are seen as an area of investment but this investment is more a means of achieving social than monetary returns. This is probably the mindset of the rich and would explain why they generally have lesser number of children in comparison to poor families. It can be assumed that the rich are better educated about family planning and would like to devote ample time, money and emotionally invest in their child to ensure that they do well in life. This investment is most effective when you have lesser number of children. The reason why poor families tend to have more children is probably because they look at children as commodities which can provide additional income to the family.
Then again, there are personal preferences that defy the trends observed(rich families having tons of children), throwing up a plethora of explanations as to why these people chose to be different. Like they say, 'The more, the merrier'.
pratik c k
"Time can change everything."
It is only time that made economists think and argue that children are "goods", even more importantly inferior goods, which parents have as long term investments. Otherwise why the Dhritrashtra, from great indian epic Mahabharatha, had 100 sons known as Kauravas. He was a king, so I assume that he was lavish. Then, Why Dritrashtra didn't felt any substitution effect after having 10 sons or 20 or 50 or finally 100. Why didn't he realised that he can invest his expenditures on his sons somewhere else??? And taking more recent example, why Anjelina jolie and Brad Pitt are adopting children from all over the world, if children are inferior goods??? Aren't they feeling that they can buy a Rollce Royce or an island instead of so many children???
In recent times, expenditures on children by their parents are increasing like anything else, even education is so costly today that everyone in India cannot afford their children's higher education. That is one of main reasons why parents, in recent times, prefers less children. Also, educated parents is second most important reason, who may possess at least a little apprehension about India's growing population and if they are not in a hurry to make India beat China in population(if not anything else).
So, i think that children were never an inferior good or ever will. I don't think that parents will ever prefer a luxurious car or a world tour package instead of having a child. We can say that parents are more concious now about the expenditures they have to make on their children and hence prefer lesser children than anytime in the history of independent India. But I can't say that children are inferior goods.
While economists such as Caplan may use empirical data to prove his theory that in modern societies children are seen as inferior goods, here we must also make a distinction between co-relation and causation. I believe that other aspects of consumer behavior have to be taken into account before concluding that children are inferior goods. For example, children as an 'investment' is not the main factor taken into consideration in higher income families having children.
First of all, to the people who think talking about children as commodities is offensive, this is an economic discussion and this definition of children as inferior goods is just for the purpose of economic analysis.
In the next few years, the fertility rate of half the world will be 2.1 or below. This is the “replacement level of fertility”,which causes a country’s population to slow down and eventually to stabilize. Assuming children are inferior goods,we can attribute this to the rise of the middle class and the rich class getting richer. This is one of the visible effects of the behavior of children as inferior goods. And this also can be a strong argument for advocates of the "children are inferior goods" theory.
Children can definitely be considered inferior goods. It has been found that wealthy nations have lower birthrates than developing countries. However I think the declining birth rates are not directly caused by rising income but by the nature of work in industrialised nations.
As countries become more industrialised there is a shift from primarily agricultural jobs to service industry jobs. The nature of work in developed, service oriented sectors is such that children are economically useless until they have obtained a full education; the level of investment required to raise a child to a level where he/she can contribute to the economy is very high. However in poorer,developing nations the main form of work is in the primary sector where children can work from a very young age with no education required.
Thus children are economically productive and are useful assets to their families in poorer countries. The relationship between lower fertility levels and higher income levels is one of correlation and not causation; both are caused by the nature of jobs in the economy.
Firstly, I believe that it would be wrong to bring into the question of the success of the child in relation to the article. My basis for saying that is that here the article deals with the number of children as per family income (though the issue of investment into the child is brought up).
Secondly, when one sees the graph on Gapminder World it is apparent that children being inferior goods is not just a issue with households, but also with countries.
It can be seen that countries which are underdeveloped like Congo, Ethopia etc. anyways have more children per woman as compared to any developed country like Japan or Switzerland.
Another interesting finding in the survey is the case with Hong Kong. Factors like exorbitant living space also play a factor.
I think that the statistical data needs to be further divided between developed and developing countries. In developing countries, the practice of having more children does not reduce with increase of income mainly because of the social stigma associated with contraception and pride associated with having large number of children. However,in Developed countries this does not hold true and hence the description of children as 'inferior goods' and the inverse relationship between income and children.
In Indian context,
Rural India has several factors, not just helping hands being the reason, most of them can be associated to lack of education and even if educated other reasons take precedence.
In cosmopolitan cities poplular belief that less number of children leads to better economic situation to control population is the primary reason. However, a bandwagon effect can be associated with it as a supplementary factor, more people choose to have two children since it is considered normal by the society. More desirable since the elite have less children. Belief that less children will provide better opportunity resulting jn over spending.
One buys more of a normal good, when they’re cheap relative to one’s income, but no matter how cheap they are, one never buys more than what one wants to consume or use. “demand “ for children is affected by many other factors such as status , religion family history etc. for eg. In our society, having more children is associated with poverty and backwardness. Also, it could be that if one grew up in a big family , he may also want a big family and getting richer might barely decrease the size. Inferior goods are those whose demand decreases due to an increase in the level of income, other factors remaining constant. But , usually when such a relationship between income level and demand for children is brought up , usually other factors such as social status, religion etc are ignored. Thus , in my opinion children cannot be termed as inferior goods.
As income rises, interest in having more children decreases. this is borne out from the fact that most rich families tend to have one or two kids, while in general, poor families tend to have much larger number of children. This may be because poor families want more children so that they could help the family earn more, while that compulsion is not present in case of rich families.Also, rich parents would want to provide the best education and standard of living to their child, and if there were more than one child, the expenditure per child decreases. Thus,rich parents want lesser number of children than poor parents. For rich parents, over expennditure is not a bone of contention, whatever they are spending on their child is good investment.
Considering the data in Justin Wolfer's article, it becomes quite clear that children are, indeed, inferior goods. Bryan Caplan's argument is an empirically weak one. He is correct to state that, today, parents do their utmost to ensure their child's development in a modern, competitive world, thus leading to great expense i.e. 'over-investment.' However, he incorrectly concentrates solely on the substitution effect to go on to say that by reducing expenditure on children, kids become cheaper than other materialistic goods. Thus, have more kids. Betsey Stevenson correctly points out that the data shows a far greater income effect wherein adults have fewer kids as they grow more affluent. Data also shows that nationwide fertility rates fall as the nation grows richer.
Having more kids makes less economic sense as you become richer and better educated. This is because, by virtue of your economic comfort, you do not have great incentives to have many children. In a largely agrarian society, an extra pair of hands is a great incentive and ensuring education, music lessons, sports, books, etc. isn't a thought. Further, as more and more women tend to work, there will automatically be a decrease in fertility rates. Due to affluence and corresponding access to greater education, adults would naturally want as many children as they can efficiently devote resources to as the motive behind a child's birth is not to make their own burden easier. Thus, they have as many children as they can give give sufficient resources to, while maintaining the comfortable standard of living offered by the modern world.
However, one can always raise the issue of the post-world war American baby-boomers of the 1950s where people began to have more children. But, this can be accounted for by the invention of labour saving household products like the fridge, dishwasher, etc. that increased the efficiency of the household (see: http://the-econoclast.blogspot.com/2005/05/are-children-inferior-good.html). In any case, US fertility continue to fall today.
On a related note, with greater affluence, there is greater urbanization and greater proliferation of nuclear families. In the Indian scenario, this can be linked to a reduction in societal pressures such as having children till there is a son, women must be housewives etc. etc. This also influences lower fertility.
As a side note, I fail to see why some comments center around the usage of the term 'inferior goods' when referring to children. Just because economics language may be perceived as 'cold' does not make it incorrect.
" It looks like standard of living (as defined by more consumerist benefits) is a clear choice over children as income increases. "
The poor, generally, due to the lack of awareness and resources to use contraceptives or surgical abortions, might end up having more children than they actually desire.
so the decrease in no. of children, as we move up along the income ladder, should not be attributed to a conscious preference of standard of lifestyle over no. of children.
a lot of poor people would be willing to trade off more no. of children for a better lifestyle.
however, whatever the reasons, there is no doubt that children are indeed inferior goods, as illustrated by the data in the freakonomics article.
There is no doubt that children are inferior goods, given the vast amount of data that testifies for it.
it would be interesting however to examine the trends observed for the girl child.
it is common knowledge that female foeticide and infanticide are a huge problem in india, even among the relatively rich families, especially in rural and semi urban areas.
this would change the dynamics a bit, and it would be interesting to see if the girl child is an inferior good too, and if yes, to what degree..
Bryan Caplan's argument that parents are less happy when they over-invest in children is fallacious since the very term 'Over-invest' is vague. Secondly with higher cost of living and higher income levels, expenditure on children tends to increase.Space and time constraints are also a big factor for parents to decide how many children they would like to have.The trend seems to be catching up in townships and rural households as well.As pointed out in the last line,standard of living is a clear choice over children as income increases.But looking at the parents choice in having children in a purely economics perspective would be short-sighted.
One fallacy with classifying children as inferior goods(absurd on all levels) is the lack of a market.
The proposition that children are inferior goods because as parents become rich they tend to have less kids can be argued soundly based on the fact that children require extensive investment of time which the rich lack to an extent.
The rich, presuming that they have been educated realise that children need extensive investment of time as they grow up which might not be the case with the poor.Now this time would come at an expense of their career achievements which the rich wont prefer.Sperm and ovary banks are a clear example of how career has become superior to children.
Shivendu Pandey (1928)
I think the high level of literacy is the reason for rich not having many kids.They are aware of the contraints of time and finances which kids impose.I think if the poor too are exposed to these constraints they will automatically have less kids.
Is not the entire theory of consumer preferences based on the assumption that consumers are rational? Can we say that the assumption holds true in the case of children? I don't think so. For instance, when a low income household has a large number of children, it cannot be said that the decision to have more children was a rational one or was based on the knowledge that children are inferior goods. It may be due to various reasons, such as illiteracy, lack of access to contraceptives etc. Normally, when we link demand for a commodity to its income, we hold all other factors constant. In this case, there are a number of other contributing factors. If parents cannot be called rational as far as children are concerned, it is hard to say conclusively that the reasoning behind having lesser children as income increases is that they view children as inferior goods.
Secondly, I have my doubts as to whether a market for children really exists. One of the basic principles of economics is that prices are attached to commodities that are scarce. Can we call children a scarce commodity? Certainly, there is a price attached to goods required for the upbringing of a child. It is evident that higher income groups spend more on such goods (education, nutrition etc.) per child than low income groups do.
It is my belief that when we speak of parents investing in their children, we actually mean that they are investing in these other goods so that the 'worth' of the child increases in the future. Though parents may have fewer children, their consumption of these complementary goods (complementary to the child's overall development) increases as their income increases. Therefore, children are not inferior goods.
While this may appear to be true on the face of it, any good to be termed an inferior good, has to have a superior good of the same category preferred to it, and that doesnt happen in this case. Empirical data does support the proposition that children are inferior goods if we ignore this, and the exceptions like a few celebrities who have many kids inspite of being extremely rich should, in my view, be ignored, as they tend to adopt children, and they have various motivations for that.
Subhankar
Caplan in this excerpt argues that demand for children is reducing only because of over investing in them by parents.Further he says that not over investing in children would lead to increasing demand for having children.A fallacy in his argument is that ;reducing investment in children will lead to relative lower performance of a child(in comparison to the children on whom more investment has been made) and hence lead to poor results in all aspects of his/her life and hence reduce the satisfaction the parents will get from investing in them leading to larger substitution effect.
Caplan in this excerpt argues that demand for children is reducing only because of over investing in them by parents.Further he says that not over investing in children would lead to increasing demand for having children.A fallacy in his argument is that ;reducing investment in children will lead to relative lower performance of a child(in comparison to the children on whom more investment has been made) and hence lead to poor results in all aspects of his/her life and hence reduce the satisfaction the parents will get from investing in them leading to larger substitution effect.
I believe the reason rich people have less children is that they can put more inputs into the growth and development of their children and still have enough money to fall back on. However, members of the poor sections do not have enough financial strength to lie back on. Hence they have more children as they feel that larger the size of their family, larger would be the income.
When a population is expanding, in evolutionary biology, it is supposed to go through a growth curve (sigmoid) where population expands rapidly while it is trying to stabilise itself (here this refers to reproductive stability) and where rate of growth slows down when it reaches a situation of relative stability.
If we take economic instability to be analogous to this, it explains why the number of children in ‘unstable’ poor families is more than that in ‘stable’ rich families.
Caplan asserts that overinvesting leads to a lack of demand for children but in fact the opposite could also be true. Awareness of population problem as well as access to contraceptives and higher opportunity costs lead the rich to have fewer children. They have substantial resources at their disposal and thus could use this to invest heavily and increase the value of the few children they do have.
In response to a previous comment, I think that girl children are not an inferior good and in fact generally prejudice against girl children exists more in a poor household. This is because girl children involve a large amount of sunk cost in their situation (dowry, education, etc.) with very little returns as they are generally not able to participate in money earning activities (manual labour). Thus it is a dead investment. In a better off family, girls may not always cost more in terms of sunk cost than a boy and moreover, the returns would be roughly the same as both girls and boys are capable of earning well in the kind of jobs that are available to the rich. Thus richer families are more likely to be satisfied with a girl child while in a poor family, a girl child will be taken as a sunk cost that can only be recovered by having a revenue generating boy child (a faulty assumption because sunk cost should not be taken into account while making future decisions) and thus they will end up having more children.
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