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Northwestern University
Department of Economics

Photo Matthias Doepke: Research

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Working Papers

Clans, Guilds, and Markets: Apprenticeship Institutions and Growth in the Pre-Industrial Economy, with David de le Croix and Joel Mokyr (March 2016).
Bargaining over Babies: Theory, Evidence, and Policy Implications, with Fabian Kindermann (March 2016).
Families in Macroeconomics, with Michèle Tertilt (March 2016).
Parenting with Style: Altruism and Paternalism in Intergenerational Preference Transmission, with Fabrizio Zilibotti (December 2015).
Distributional Effects of Monetary Policy, with Martin Schneider and Veronika Selezneva (September 2015).
Intrahousehold Decision Making and Fertility, with Fabian Kindermann (December 2014).
Does Female Empowerment Promote Economic Development?, with Michèle Tertilt (April 2014).
Money as a Unit of Account, with Martin Schneider (October 2013).
Colonies, with Andrea Eisfeldt (January 2007).

Publications

The Baby Boom and World War II: A Macroeconomic Analysis, with Moshe Hazan and Yishay Maoz. Review of Economic Studies, July 2015.
Gary Becker on the Quantity and Quality of Children, Journal of Demographic Economics, March 2015.
Culture, Entrepreneurship, and Growth, with Fabrizio Zilibotti. Chapter 1 in Handbook of Economic Growth, Vol. 2, December 2013.
Exploitation, Altruism, and Social Welfare: An Economic Exploration. Politics, Philosophy & Economics, November 2013.
The Economics and Politics of Women's Rights, with Michèle Tertilt and Alessandra Voena. Annual Review of Economics, July 2012.
Do International Labor Standards Contribute to the Persistence of the Child Labor Problem? With Fabrizio Zilibotti. Journal of Economic Growth, March 2010.
Women's Liberation: What's in It for Men?, with Michèle Tertilt. Quarterly Journal of Economics, November 2009.
International Labor Standards and the Political Economy of Child Labor Regulation, with Fabrizio Zilibotti. Journal of the European Economic Association, April-May 2009.
To Segregate or to Integrate: Education Politics and Democracy, with David de la Croix. Review of Economic Studies, April 2009.
Occupational Choice and the Spirit of Capitalism, with Fabrizio Zilibotti. Quarterly Journal of Economics, May 2008.
Humankapital, politischer Wandel und langfristige Wirtschaftsentwickung, plenary talk at the annual meeting of Verein für Socialpolitik 2007, published in Perspektiven der Wirtschaftspolitik, May 2008.
Growth Takeoffs, entry prepared for New Palgrave Dictionary of Economics, 2nd edition, May 2008.
Origins and Consequences of Child Labor Restrictions: A Macroeconomic Perspective, with Dirk Krueger, published in Frontiers in Family Economics, edited by Peter Rupert, Emerald Press, 2008.
The Research Agenda: Matthias Doepke on the Transition from Stagnation to Growth. EconomicDynamics Newsletter, April 2007.
Inflation and the Redistribution of Nominal Wealth, with Martin Schneider. Journal of Political Economy, December 2006.
Aggregate Implications of Wealth Redistribution: The Case of Inflation, with Martin Schneider. Journal of the European Economic Association, April-May 2006.
Dynamic Mechanism Design with Hidden Income and Hidden Actions, with Robert Townsend. Journal of Economic Theory, January 2006.
The Macroeconomics of Child Labor Regulation, with Fabrizio Zilibotti. American Economic Review, December 2005.
Child Mortality and Fertility Decline: Does the Barro-Becker Model Fit the Facts? Journal of Population Economics, June 2005.
Social Class and the Spirit of Capitalism, with Fabrizio Zilibotti. Journal of the European Economic Association, April-May 2005.
Show Me the Money: Retained Earnings and the Real Effects of Monetary Shocks. Recherches Economiques de Louvain, 1/2005.
Accounting for Fertility Decline During the Transition to Growth. Journal of Economic Growth, September 2004.
Public versus Private Education when Differential Fertility Matters, with David de la Croix. Journal of Development Economics, April 2004.
Inequality and Growth: Why Differential Fertility Matters, with David de la Croix. American Economic Review, September 2003.


Clans, Guilds, and Markets: Apprenticeship Institutions and Growth in the Pre-Industrial Economy

With David de la Croix and Joel Mokyr

Abstract: In the centuries leading up to the Industrial Revolution, Western Europe gradually pulled ahead of other world regions in terms of technological creativity, population growth, and income per capita. We argue that superior institutions for the creation and dissemination of productive knowledge help explain the European advantage. We build a model of technological progress in a pre-industrial economy that emphasizes the person-to-person transmission of tacit knowledge. The young learn as apprentices from the old. Institutions such as the family, the clan, the guild, and the market organize who learns from whom. We argue that medieval European institutions such as guilds, and specific features such as journeymanship, can explain the rise of Europe relative to regions that relied on the transmission of knowledge within extended families or clans.

Keywords: Apprenticeship, Guilds, Dissemination of Knowledge.

The paper (March 2016):
[ PDF ]

Discussions of this paper: NZZ (Link), Frankfurter Allgemeine Zeitung.

YouTube Video (in German) of interview discussion of this paper.


Bargaining over Babies: Theory, Evidence, and Policy Implications

With Fabian Kindermann

Abstract: It takes a woman and a man to make a baby. This fact suggests that for a birth to take place, the parents should first agree on wanting a child. Using newly available data on fertility preferences and outcomes, we show that indeed, babies are likely to arrive only if both parents desire one, and there are many couples who disagree on having babies. We then build a bargaining model of fertility choice and match the model to data from a set of European countries with very low fertility rates. The distribution of the burden of child care between mothers and fathers turns out to be a key determinant of fertility. A policy that lowers the child care burden specifically on mothers can be more than twice as effective at increasing the fertility rate compared to a general child subsidy.

Keywords: Fertility, Bargaining, Child Care.

The paper (March 2016):
[ PDF ]

Presentation slides:
[ PDF ]

A non-technical summary:
Why European Women are Saying No to Having (More) Babies (Published on Vox).

A non-technical summary in German:
Kinder sind Verhandlungssache (Published on Ökonomenstimme).

An article in Diário de Notícia by Fernanda Cancio discussing the paper: Feminismo é bom para a natalidade.

Other discussions of the paper: Quartz, Co.exist, Marginal Revolution, AEIdeas, HCEO, Observador, Sempre Familia, The Age, euro2day, obserwator finansowy, Sydney Morning Herald.


Families in Macroeconomics

With Michèle Tertilt

Abstract: Much of macroeconomics is concerned with the allocation of physical capital, human capital, and labor over time and across people. The decisions on savings, education, and labor supply that generate these variables are made within families. Yet the family (and decision-making in families) is typically ignored in macroeconomic models. In this chapter, we argue that family economics should be an integral part of macroeconomics, and that accounting for the family leads to new answers to classic macro questions. Our discussion is organized around three themes. We start by focusing on short and medium run fluctuations, and argue that changes in family structure in recent decades have important repercussions for the determination of aggregate labor supply and savings. Next, we turn to economic growth, and describe how accounting for families is central for understanding differences between rich and poor countries and for the determinants of long-run development. We conclude with an analysis of the role of the family as a driver of political and institutional change.

Keywords: Macroeconomics, Families, Households, Bargaining, Fertility, Labor Supply.

The paper (March 2016):
[ PDF ]


Parenting with Style: Altruism and Paternalism in Intergenerational Preference Transmission

With Fabrizio Zilibotti

Abstract: We develop a theory of intergenerational preference transmission that rationalizes the choice between parenting styles. Parents maximize an objective function that combines Beckerian altruism and paternalism towards children. They can affect their children's choices via two channels: either by influencing children's preferences or by imposing direct restrictions on their choice sets. Different parenting styles (authoritarian, authoritative, permissive) emerge as equilibrium outcomes, and are affected both by parental preferences and by the socioeconomic environment. The theory is consistent with the decline of authoritarian parenting in industrialized countries, and with the greater prevalence of permissive parenting in countries characterized by low inequality.

Keywords: Parenting Style, Intergenerational Preference Transmission, Paternalism, Occupational Choice.

The paper (December 2015):
[ PDF ]

Older version with additional extensions (December 2012):
[ PDF ]

A non-technical summary:
Tiger Moms and Helicopter Parents: The Economics of Parenting Style (Published in Vox).

A discussion of the paper on nytimes.com by Anand Giridharadas: Unequal Societies Give an Incentive for Pushy Parenting.

An opinion piece by Pamela Druckerman on nytimes.com that cites the paper: A Cure for Hyper-Parenting.

A discussion in Chicago Magazine by Whet Moser: Why Are Helicopter Parents So Intense? Maybe They're Scared.

Fabrizio Zilibotti's honorary speech on 'Parenting with Style' at the XVI April International Academic Conference on Economic and Social Development in Moscow, April 15, 2015: Parenting Styles and Economics.

A discussion in Les Echos by Jean-Marc Vittori: L'économie, les mamans tigres et les parents hélicoptères.

A discussion on Slate (French site) by Alphonse Corone: Plus vous vivez dans une société inégalitaire, moins vos parents vous laissent développer votre imagination, et inversement (sauf en France).

A discussion in La Repubblica by Rosaria Amato: Cosa rende i genitori severi o permissivi? La risposta degli economisti.

A discussion in Dagens Næringsliv by Eva Grinde: Like, rike og uoppdragne.

A podcast on Radio France by Charlie Dupiot: L'enfant optimiste.

Mentions and discussions of the paper at other places: Washington Post, NZZ am Sonntag, Frankfurter Allgemeine Sonntagszeitung, El Mundo, Aftenposten, Calcalist, metafilter.com, Greg Mankiw's Blog, nuzzel.com, econoGIST, smartweek.it, The Telegraph, World Economic Forum, Quartz I, Quartz II, Nada es Gratis, Cafe, Iconomix, Observador, Marginal Revolution.

YouTube Video of presentation of this paper at the Barcelona GSE Summer Forum.


Distributional Effects of Monetary Policy

With Martin Schneider and Veronika Selezneva

Abstract: This paper quantitatively assesses distributional effects of monetary policy. We use a life cycle model with housing to compute the response of the U.S. household sector to an increase in the Federal Reserve's inflation target. We find than an increase in nominal interest rates generated by higher expected inflation has sizeable and heterogeneous welfare effects. Moreover, the responses of winners and losers do not cancel out; instead the policy announcement has persistent effects on aggregate consumption and house prices that propagate through the distribution of wealth.

Keywords: Inflation, Redistribution, Monetary Policy, Housing.

[ Draft not yet available ]

A discussion of the paper on nytimes.com by Binyamin Appelbaum: Ben Bernanke Says Fed Can't Get Caught Up in Inequality Debate.

Mentions and discussions of the paper at other places: washingtonpost.com, aljazeera.com, bloomberg.com, wsj.com, hellenicshippingnews.com, indiatimes.com, NZZ, FAZ, CSPAN.

The paper partly supersedes an earlier paper entitled "Inflation as a Redistribution Shock: Effects on Aggregates and Welfare" (with Martin Schneider, May 2006), which is available here:
[ PostScript | PDF ]


Intrahousehold Decision Making and Fertility

With Fabian Kindermann

Abstract: The economic theory of fertility choice builds predominantly on the unitary model of the household, in which there is a single household utility function and potential intra-household disagreement is abstracted from. Empirical evidence suggests, however, that many (potential) mothers and fathers disagree on whether to have children, on how many children to have, and on when to have them. In this paper, we review existing work that brings models of intrahousehold conflict and bargaining to bear on fertility choice, and we point out promising future directions for this line of research.

Keywords: Fertility, Bargaining, Child Care, Limited Commitment.

The paper (December 2014):
[ PDF ]


Does Female Empowerment Promote Economic Development?

With Michèle Tertilt

Abstract: Empirical evidence suggests that money in the hands of mothers (as opposed to fathers) increases expenditures on children. From this, should we infer that targeting transfers to women is good economic policy? In this paper, we develop a non-cooperative model of household decision making to answer this question. We show that when women have lower wages than men, they may spend more on children, even when they have exactly the same preferences as their husbands. However, this does not necessarily mean that giving money to women is a good development policy. We show that depending on the nature of the production function, targeting transfers to women may be beneficial or harmful to growth. In particular, such transfers are more likely to be beneficial when human capital, rather than physical capital or land, is the most important factor of production.

Keywords: Gender Equality, Development, Marital Bargaining.

The paper (April 2014):
[ PDF ]

Presentation slides:
[ PDF ]

Earlier version with expanded literature review and additional models (April 2011):
[ PDF ]


Money as a Unit of Account

With Martin Schneider

Abstract: We develop a theory that rationalizes the use of a dominant unit of account in an economy. Agents enter into non-contingent contracts with a variety of business partners. Trade unfolds sequentially in credit chains and is subject to random matching. By using a dominant unit of account, agents can lower their exposure to relative price risk, avoid costly default, and create more total surplus. We discuss conditions under which it is optimal to adopt circulating government paper as the dominant unit of account, and the optimal choice of "currency areas" when there is variation in the intensity of trade within and across regions.

Keywords: Unit of Account, Long-Term Contracts, Relative Price Risk.

The paper (October 2013):
[ PDF ]

Presentation slides:
[ PDF ]


Colonies

With Andrea Eisfeldt

Abstract: In many developing countries, the institutional framework governing economic life has its roots in the colonial period, when the interests of European settlers clashed with those of the native population or imported slaves. We examine the economic implications of this conflict in a framework where institutions are represented by the number of people with property-rights protection, i.e., "gun owners." In the model, gun owners can protect their own property, they can exploit others who do not own guns, and they may decide to extend property rights by handing out guns to previously unarmed people. The theory generates a "reversal of fortune" between colonies with many and few oppressed: income per capita is initially highest in colonies with many oppressed that can be exploited by gun owners, but later on excessive concentration of economic power becomes a hindrance for development.

Keywords: Colonization, Property Rights, Slavery, Development.

The paper (January 2007):
[ PostScript | PDF ]


The Baby Boom and World War II: A Macroeconomic Analysis

With Moshe Hazan and Yishay Maoz

Review of Economic Studies, 82(3), 1031-1073, July 2015.

Abstract: We argue that one major cause of the U.S. postwar baby boom was the rise in female labor supply during World War II. We develop a quantitative dynamic general equilibrium model with endogenous fertility and female labor-force participation decisions. We use the model to assess the impact of the war on female labor supply and fertility in the decades following the war. For the war generation of women, the high demand for female labor brought about by mobilization leads to an increase in labor supply that persists after the war. As a result, younger women who turn adult in the 1950s face increased labor-market competition, which impels them to exit the labor market and start having children earlier. The effect is amplified by the rise in taxes necessary to pay down wartime government debt. In our calibrated model, the war generates a substantial baby boom followed by a baby bust.

Keywords: Fertility, Female Labor-Market Participation, Baby Boom, World War II.

The article:
[ PDF ]
Working paper version (February 2015):
[ PDF ]

Online appendix (February 2015):
[ PDF ]

Presentation slides:
[ PDF ]

Codes and data:
[ zip file ]

A non-technical summary with a discussion of policy implications:
Europe's Fertility Crisis: Lessons From the Post-War Baby Boom (published in Vox).

A summary of the paper on the LSE USAPP blog:
How Rosie the Riveter led to the 1950s' Baby Boom.


Gary Becker on the Quantity and Quality of Children

Journal of Demographic Economics, 81(1), 59-66, March 2015.

Abstract: This paper reviews Gary Becker's contributions to the economic analysis of fertility, from his 1960 paper introducing the quantity-quality tradeoff to later work linking the economics of fertility to the theory of economic growth.

Keywords: Gary Becker, Fertility, Quantity-Quality Model, Demographic Transition.

The article:
[ PDF ]
Working paper version (November 2014):
[ PDF ]


Culture, Entrepreneurship, and Growth

With Fabrizio Zilibotti

Handbook of Economic Growth, Vol. 2, 1-48, December 2013.

Abstract: We discuss the two-way link between culture and economic growth. We present a model of endogenous technical change where growth is driven by the innovative activity of entrepreneurs. Entrepreneurship is risky and requires investments that affect the steepness of the lifetime consumption profile. As a consequence, the occupational choice of entrepreneurship hinges on risk tolerance and patience. Parents expecting their children to become entrepreneurs have an incentive to instill these two values in their children. Cultural transmission is Beckerian, i.e., parents are driven by the desire to maximize their children's happiness. We also consider, in an extension, a paternalistic motive for preference transmission. The growth rate of the economy depends on the fraction of the population choosing an entrepreneurial career. How many entrepreneurs there are in a society hinges, in turn, on parental investments in children's patience and risk tolerance. There can be multiple balanced-growth paths, where in faster-growing countries more people exhibit an ``entrepreneurial spirit." We discuss applications of models of endogenous preferences to the analysis of socio-economic transformations, such as the British Industrial Revolution. We also discuss empirical studies documenting the importance of culture and preference heterogeneity for economic growth.

Keywords: Culture, Entrepreneurship, Innovation, Economic Growth, Endogenous Preferences, Intergenerational Preference Transmission.

The article:
[ PDF ]
Working paper version (June 2013):
[ PDF ]


Exploitation, Altruism, and Social Welfare: An Economic Exploration

Politics, Philosophy & Economics, 12(4), 375-391, November 2013.

Abstract: Child labor is often condemned as a form of exploitation. I explore how the notion of exploitation, as used in everyday language, can be made precise in economic models of child labor. Exploitation is defined relative to a specific social welfare function. I first show that under the standard dynastic social welfare function, which is commonly applied to intergenerational models, child labor is never exploitative. In contrast, under an inclusive welfare function, which places additional weight on the welfare of children, child labor is always exploitative. Neither welfare function captures the more gradual distinctions that common usage of the term exploitation allows. I resolve this conflict by introducing a welfare function with minimum altruism, in which child labor in a given family is judged relative to a specific social standard. Under this criterion, child labor is exploitative only in families where the parent (or guardian) displays insufficient altruism towards the child. I argue that this welfare function best captures the conventional concept of exploitation and has useful properties for informing political choices regarding child labor.

Keywords: Child Labor, Exploitation, Social Welfare Function, Altruism.

The article:
[ PDF ]
Working paper version (June 2013):
[ PDF ]


The Economics and Politics of Women's Rights

With Michèle Tertilt and Alessandra Voena

Annual Review of Economics, 4, 339-372, July 2012.

Abstract: Women's rights and economic development are highly correlated. Today, the discrepancy between the legal rights of women and men is much larger in developing compared to developed countries. Historically, even in countries that are now rich women had few rights before economic development took off. Is development the cause of expanding women's rights, or conversely, do women's rights facilitate development? We argue that there is truth to both hypotheses. The literature on the economic consequences of women's rights documents that more rights for women lead to more spending on health and children, which should benefit development. The political-economy literature on the evolution of women's rights finds that technological change increased the costs of patriarchy for men, and thus contributed to expanding women's rights. Combining these perspectives, we discuss the theory of Doepke and Tertilt (2009), where an increase in the return to human capital induces men to vote for women's rights, which in turn promotes growth in human capital and income per capita.

Keywords: Women's Rights, Political Economy, Development.

The article:
[ PDF | Link ]
Working paper version (December 2011):
[ PDF ]

Discussion of this paper on the Economic Logic blog.


Do International Labor Standards Contribute to the Persistence of the Child Labor Problem?

With Fabrizio Zilibotti

Journal of Economic Growth, 15(1), 1-31, March 2010.

Abstract: In recent years, a number of governments and consumer groups in rich countries have tried to discourage the use of child labor in poor countries through measures such as product boycotts and the imposition of international labor standards. The purported objective of such measures is to reduce the incidence of child labor in developing countries and thereby improve children's welfare. In this paper, we examine the effects of such policies from a political-economy perspective. We show that these types of international action on child labor tend to lower domestic political support within developing countries for banning child labor. Hence, international labor standards and product boycotts may delay the ultimate eradication of child labor.

Keywords: Child Labor, Political Economy, International Labor Standards, Trade Sanctions.

The article:
[ PDF ]
Working paper version (November 2009):
[ PDF ]

An opinion piece based on this research in Room for Debate on nytimes.com:
Western Pressure Reduces Crucial Local Action to End Child Labor.

A non-technical summary with a discussion of policy implications:
Child Labor: Is International Activism the Solution or the Problem? (Published in Vox).

An editorial based on the paper (in German):
Warum internationale Boykotte gegen Kinderarbeit die Lage eher verschlimmern als verbessern (Published in GEO, July 2010).

Discussions of this paper on various blogs: Freakonomics, Economic Logic, Pixelökonom, EconoSpeak.

An article about this paper in Frankfurter Allgemeine Sonntagszeitung (in German): Kauft T-Shirts aus Kinderhand.


Women's Liberation: What's in It for Men?

With Michèle Tertilt

Quarterly Journal of Economics, 124(4), 1541-1591, November 2009.

Abstract: The nineteenth century witnessed dramatic improvements in the legal rights of married women. Given that they took place long before women gained the right to vote, these changes amounted to a voluntary renouncement of power by men. In this paper, we investigate men's incentives for sharing power with women. In our model, women's legal rights set the marital bargaining power of husbands and wives. We show that men face a tradeoff between the rights they want for their own wives (namely none) and the rights of other women in the economy. Men prefer other men's wives to have rights because men care about their own daughters and because an expansion of women's rights increases educational investments in children. We show that men may agree to relinquish some of their power once technological change increases the importance of human capital. We corroborate our argument with historical evidence on the expansion of women's rights in England and the United States.

Keywords: Women's Rights, Political Economy, Human Capital, Return to Education.

The article:
[ PDF ]
Working paper version with mathematical appendix (December 2008):
[ PDF ]

Presentation slides:
[ PDF ]

A non-technical summary:
Women's Rights: What's in It for Men? (published in Vox).

An interview discussing the paper:
The Emergence of Women's Rights and Gender Equality.


International Labor Standards and the Political Economy of Child Labor Regulation

With Fabrizio Zilibotti

Journal of the European Economic Association, 7(2-3), 508-518, April-May 2009.

Abstract: Child labor is a persistent phenomenon in many developing countries. In recent years, support has been growing among rich-country governments and consumer groups for the use of trade policies, such as product boycotts and the imposition of international labor standards, to reduce child labor in poor countries. In this paper, we discuss research on the long-run implications of such policies. In particular, we demonstrate that such measures may have the unintended side effect of lowering domestic support for banning child labor within developing countries, and thus may contribute to the persistence of the child-labor problem.

Keywords: Child Labor, Political Economy, International Labor Standards, Trade Sanctions.

The article:
[ PDF ]
Working paper version (September 2008):
[ PDF ]


To Segregate or to Integrate:
Education Politics and Democracy

With David de la Croix

Review of Economic Studies, 76(2), 597-628, April 2009.

Abstract: How is the quality of public education affected by the presence of private schools for the rich? Theory and evidence suggest that the link depends crucially on the political system. We develop a theory that integrates private education and fertility decisions with voting on public schooling expenditures. We find that the presence of a large private education sector benefits public schools in a broad-based democracy where politicians are responsive to low-income families, but crowds out public-education spending in a society that is politically dominated by the rich. The main predictions of the theory are consistent with state-level and micro data from the United States as well as cross-country evidence from the PISA study.

Keywords: Public Education, Private Education, Probabilistic Voting, Democracy.

The article:
[ PDF ]
Working paper version (July 2008):
[ PostScript | PDF ]

A non-technical summary: Politics and the Structure of Eduation Funding (published in Vox).

The same in French: Financement privé de l'éducation, inégalités et démocratie.


Occupational Choice and the Spirit of Capitalism

With Fabrizio Zilibotti

Quarterly Journal of Economics, 123(2), 747-793, May 2008.

Abstract: The British Industrial Revolution triggered a reversal in the social order whereby the landed elite was replaced by industrial capitalists rising from the middle classes as the economically dominant group. Many observers have linked this transformation to the contrast in values between a hard-working and thrifty middle class and an upper class imbued with disdain for work. We propose an economic theory of preference formation in which both the divergence of attitudes across social classes and the ensuing reversal of economic fortunes are equilibrium outcomes. In our theory, parents shape their children's preferences in response to economic incentives. If financial markets are imperfect, this results in the stratification of society along occupational lines. Middle-class families in occupations that require effort, skill, and experience develop patience and work ethic, whereas upper-class families relying on rental income cultivate a refined taste for leisure. These class-specific attitudes, which are rooted in the nature of pre-industrial professions, become key determinants of success once industrialization transforms the economic landscape.

Keywords: Endogenous Preferences, Social Classes, Stratification, Industrial Revolution.

The article:
[ PDF ]
Working paper version with mathematical appendix (September 2007):
[ PostScript | PDF ]

Presentation slides:
[ PDF ]


Humankapital, politischer Wandel und langfristige Wirtschaftsentwickung

Plenary talk at the annual meeting of Verein für Socialpolitik 2007, published in Perspektiven der Wirtschaftspolitik, 9(3), 73-89, May 2008.

Abstract: Seit Mitte der achtziger Jahre hat die neue Wachstumstheorie verstärkt Aufmerksamkeit auf Humankapital als eine Quelle des Wirtschaftswachstums gelenkt. Neuere empirische Ergebnisse weisen allerdings darauf hin, dass Bildungsinvestitionen nur geringe soziale Externalitäten erzeugen und dass der direkte Beitrag des Humankapitals zum Wirtschaftswachstum relativ gering ist. In dieser Arbeit wird der Beitrag des Humankapitals zur Wirtschaftsentwicklung im Rahmen der langfristigen Wachstumstheorie dargestellt, deren Gegenstand ist, den Übergang von Ländern von vor-industrieller Stagnation zu stetigem Wirtschaftswachstum zu erklären. Hier erweist sich, dass Humankapital nicht nur direkte Produktivitätseffekte erzeugt, sondern auch als Auslöser verschiedener entwicklungsfördernder politischer Reformen dienen kann.

The article:
[ PDF ]
Working paper version (November 2007):
[ PostScript | PDF ]


Growth Takeoffs

Entry prepared for New Palgrave Dictionary of Economics, 2nd Edition.

Abstract: Following a phase of near-constant living standards lasting from Stone Age until the onset of the Industrial Revolution, a large number of countries have experienced growth takeoffs, in which stagnation gives way to sustained economic growth. What causes some countries to enter a growth takeoff, while others remain poor? We discuss three mechanisms that can trigger a growth takeoff in a country previously captured in a poverty trap: fertility decline, structural change, and accelerating technological progress.

Keywords: Industrial Revolution, Demographic Transition, Structural Change.

The paper (January 2006):
[ PostScript | PDF ]


Origins and Consequences of Child Labor Restrictions: A Macroeconomic Perspective

With Dirk Krueger

Published in Frontiers in Family Economics, edited by Peter Rupert, Emerald Press, 2008.

Abstract: In this paper we investigate the positive and normative consequences of child-labor restrictions for economic aggregates and welfare. We argue that even though the laissez-faire equilibrium may be inefficient, there are usually better policies to cure these inefficiencies than the imposition of a child-labor ban. Given this finding, we investigate the potential political-economic reasons behind the emergence and persistence of child-labor legislation. Our investigation is based on a structural dynamic general equilibrium model that provides a coherent and uniform framework for our analysis.

Keywords: Child Labor, Welfare, Efficiency, Political Economics.

Working paper version (October 2006):
[ PostScript | PDF ]


The Research Agenda: Matthias Doepke on the Transition from Stagnation to Growth

The EconomicDynamics Newsletter, 87(2), April 2007.

An overview of my research on economic growth.

The article:
[ HTML | PDF ]


Inflation and the Redistribution of Nominal Wealth

With Martin Schneider

Journal of Political Economy, 114(6), 1069-1097, December 2006.

Abstract: This study quantitatively assesses the effects of inflation through changes in the value of nominal assets. It documents nominal asset positions in the United States across sectors and groups of households and estimates the wealth redistribution caused by a moderate inflation episode. The main losers from inflation are rich, old households, the major bondholders in the economy. The main winners are young, middle-class households with fixed-rate mortgage debt. Besides transferring resources from the old to the young, inflation is a boon for the government and a tax on foreigners. Lately, the amount of U.S. nominal assets held by foreigners has grown dramatically, increasing the potential for a large inflation-induced wealth transfer from foreigners to domestic households.

Keywords: Inflation, Redistribution.

The article:
[ PDF ]
Working paper version (August 2006):
[ PostScript | PDF ]
Technical appendix:
[ PostScript | PDF ]

A discussion of the paper in Region Focus.


Aggregate Implications of Wealth Redistribution:
The Case of Inflation

With Martin Schneider

Journal of the European Economic Association, 4(2-3), 493-502, April-May 2006.

Abstract: This paper shows that a zero-sum redistribution of wealth within a country can have persistent aggregate effects. Motivated by the case of an unanticipated inflation episode, we consider redistribution shocks that shift resources from old to young households. Aggregate effects arise because there are asymmetries in the reaction of winners and losers to changes in wealth. We focus on two sources of asymmetries: differences in the average age of winners and losers, and differences in their labor force status.

Keywords: Redistribution, Aggregate Effects.

The article:
[ PDF ]
Working paper version (October 2005):
[ PostScript | PDF ]


Dynamic Mechanism Design with Hidden Income and Hidden Actions

With Robert M. Townsend

Journal of Economic Theory 126(1), 235-285, January 2006.

Abstract: We develop general recursive methods to solve for optimal contracts in dynamic principal-agent environments with hidden states and hidden actions. In our baseline model, the principal observes nothing other than transfers. Nevertheless, optimal incentive-constrained insurance can be attained. Starting from a general mechanism with arbitrary communication, randomization, full history dependence, and without restrictions on preferences or technology, we show how the optimal contract can be efficiently implemented as a recursive direct mechanism. Our methods generalize to environments with multiple actions and additional states, some of which may be observable. The key to implementing these extensions is to introduce multiple layers of off-path utility bounds.

Keywords: Mechanism Design, Partial Insurance, Dynamic Contracts.

The article:
[ PDF ]
Working paper version (August 2004):
[ PostScript | PDF ]

Earlier versions with additional proofs and numerical results:
April 2003: [ PostScript | PDF, Appendix: PostScript | PDF ]
April 2002: [ PostScript | PDF ]
August 2001: [ PostScript | PDF ]


The Macroeconomics of Child Labor Regulation

With Fabrizio Zilibotti

American Economic Review 95(5), 1492-1524, December 2005.

Abstract: We develop a positive theory of the adoption of child labor laws. Workers who compete with children in the labor market support the introduction of a child labor ban, unless their own working children provide a large fraction of family income. Fertility decisions lock agents into specific political preferences, and multiple steady states can arise. The introduction of child labor laws can be triggered by skill-biased technological change that induces parents to choose smaller families. The theory can account for the observation that in Britain regulations were first introduced after a period of rising wage inequality, and coincided with rapid fertility decline.

Keywords: Child Labor, Voting, Fertility, Inequality.

An earlier version of this paper circulated under the title: "Voting with your Children: A Positive Analysis of Child-Labor Laws."

The article:
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Working paper version (May 2005):
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Presentation slides:
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Read an article in The Region about this paper: Why Johnny Can't Work

A static version of the model that illustrates the main ideas in a simplified framework (useful for teaching purposes).


Child Mortality and Fertility Decline: Does the Barro-Becker Model Fit the Facts?

Journal of Population Economics 18(2), 337-366, June 2005.

Abstract: I compare the predictions of three variants of the altruistic parent model of Barro and Becker for the relationship between child mortality and fertility. In the baseline model fertility choice is continuous, and there is no uncertainty over the number of surviving children. The baseline model is contrasted to an extension with discrete fertility choice and stochastic mortality and a setup with sequential fertility choice. The quantitative predictions of the models are remarkably similar. While in each model the total fertility rate falls as child mortality declines, the number of surviving children increases. The results suggest that factors other than declining infant and child mortality are responsible for the large decline in net reproduction rates observed in industrialized countries over the last century.

Keywords: Fertility, Infant Mortality, Child Mortality, Demographic Transition.

The article:
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Working paper version (April 2004):
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Social Class and the Spirit of Capitalism

With Fabrizio Zilibotti

Journal of the European Economic Association 3(2-3), 516-524, April-May 2005.

Abstract: The British Industrial Revolution was a time of major socio-economic transformations. We review a number of recent economic theories which analyze the transition from a preindustrial world characterized by high fertility, stationary standards of living, and rigid social hierarchies to modern capitalism. One of the key social transformations that accompanied the Industrial Revolution was the economic decline of the aristocracy. Standard theories of wealth inequality cannot explain why the aristocrats, in spite of their superior wealth and education, failed to be the main protagonists and beneficiaries of industrialization. We discuss recent research based on a model of endogenous preferences that is consistent with the demise of aristocracy.

Keywords: Endogenous Preferences, Industrial Revolution, Social Class.

The article:
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Working paper version (September 2004):
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Show Me the Money: Retained Earnings and the Real Effects of Monetary Shocks

Recherches Economiques de Louvain, 71(1), 5-34, 2005.

Abstract: The empirical literature on monetary policy shocks documents that contractionary shocks are followed by a persistent rise in interest rates and a persistent fall in output. Standard monetary business cycle models can account for the initial effects of monetary shocks, but have difficulty generating persistence. In this paper, I examine whether frictions that affect the asset allocation decisions of households can lead to persistent effects. In the model economy, households hold two assets, one used for transactions (the checking account) and one used for investment (the savings account). There is a small transaction cost for moving funds between the accounts. Another key feature of the economy is that the business sector accumulates retained earnings and credits profits to the consumers only with a delay. I show that in this environment monetary shocks have persistent effects even when the adjustment cost is very small.

Keywords: Monetary Shocks, Retained Earnings, Persistence, Business Cycles, Flow of Funds.

The article:
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Working paper version (November 2003):
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Accounting for Fertility Decline During
the Transition to Growth

Journal of Economic Growth 9(3), 347-383, September 2004.

Abstract: In every developed country, the economic transition from pre-industrial stagnation to modern growth was accompanied by a demographic transition from high to low fertility. Even though the overall pattern is repeated, there are large cross-country variations in the timing and speed of the demographic transition. What accounts for falling fertility during the transition to growth? To answer this question, this paper develops a unified growth model which delivers a transition from stagnation to growth, accompanied by declining fertility. The model is used to determine whether government policies that affect the opportunity cost of education can account for cross-country variations in fertility decline. Among the policies considered, education subsidies have only minor effects, while accounting for child-labor regulations is crucial. Apart from influencing fertility, the policies also have large effects on the evolution of the income distribution in the course of development.

Keywords: Growth, Fertility, Demographic Transition, Education, Child Labor, Income Distribution.

The article:
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Working paper version (May 2004):
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An earlier, more detailed version under the title "Growth and Fertility in the Long Run" is also available (May 2000):
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Public versus Private Education when Differential Fertility Matters

With David de la Croix

Journal of Development Economics 73(2), 607-629, April 2004.

Abstract: We assess the merits of different education systems in a framework that accounts for the joint decision problem of parents regarding fertility and education. Specifically, we compare the implications of a public and a private schooling regime for economic growth and inequality. We find that private schooling leads to higher growth when there is little inequality in human capital endowments across families. In contrast, when inequality is high, public education yields higher growth by reducing fertility differentials. In addition, public schooling leads to income convergence, while private schooling can result in ever increasing inequality. Our analysis highlights the importance of accounting for endogenous fertility differentials when analyzing educational policies.

Keywords: Growth, Inequality, Fertility, Public Education, Private Education.

The article:
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Working paper version (April 2003):
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Inequality and Growth: Why Differential Fertility Matters

With David de la Croix

American Economic Review 93(4), 1091-1113, September 2003.

Abstract: We develop a new theoretical link between inequality and growth. In our model, fertility and education decisions are interdependent. Poor parents decide to have many children and invest little in education. A mean-preserving spread in the income distribution increases the fertility differential between the rich and the poor, which implies that more weight gets placed on families who provide little education. Consequently, an increase in inequality lowers average education and, therefore, growth. We find that this fertility-differential effect accounts for most of the empirical relationship between inequality and growth.

Keywords: Growth, Inequality, Differential Fertility, Human Capital, Education.

The article:
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Working paper version (September 2002):
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Research papers presented on this page are based upon work supported by the National Science Foundation under grants No. SES-0217051, SES-0519265, SES-0820409, and SES-1260961.