A network approach to economic models of fertility. (November 2016) - Youm, Yoosik
Since its first appearance in the late 1950s, the neoclassical economic theory of fertility, particularly as exemplified by Gary Becker's model of household production function that assumes a unitary utility function of the household, has become one of the most popular paradigms with which to examine fertility changes. Recently, the bargaining model that assumes separate utility functions has emerged as a strong opponent to the original paradigm. This article provides network foundation to reconcile two competing economic paradigms. Our formal model predicts that the way in which separate utilities of couples are treated in their joint childbearing decisions depends on the network embeddedness of spouses (i.e. the intra-household network). If spouses are not embedded into each other's networks, the assumption of the unitary utility function is no longer warranted, and their decision process follows the bargaining model. However, strongly embedded couples behave as if they share the common utility function, predicted by the Becker model. Our model prediction is supported by analysis of three waves of panel data, Korean Longitudinal Survey of Women and Families, collected in South Korea where a dramatic drop in the fertility rate is reported. We find that the wife's bargaining power, measured by the income difference between couples, can exert its influence on having a new-born child only when couples' intra-household networks are weakly embedded, whereas strongly embedded couples consistently maintain high fertility rates regardless of how much the wife earns. We conclude that social networks play a significant role in shaping how neoclassical economic models of fertility work and discuss its implication to the efforts enhancing the fertility rate.