Endogenous fertility,altruistic behavior across generations,and social security systems

The present paper explores the impact of an intergenerational externality on private fertility decisions, under a pay-as-you-go social security system. The analysis is performed in the framework of a steady state growth model, with overlapping generations. To explain why households have children, altruism between parents and children is assumed. Surprisingly, the effects of altruism are not symmetric. The private fertility decisions are optimal only if children love their parents, because children then make private transfers at exactly the right level.Comments of participants of a seminar on economic theory of Prof. K. Jaeger at Free University of Berlin at July 20, 1989, are gratefully acknowledged. I am indebted to Alessandro Cigno, Frank Klanberg and Elmar Wolfstetter for many helpful suggestions.