Economic Dynamics Newsletter

Michèle Tertilt on Gender in Macroeconomics

1. Introduction

A large empirical and experimental literature exists that documents important gender differences in preferences and behavior (e.g. Croson and Gneezy 2009, Niederle and Vesterlund 2007). Relative to men, women are more risk averse, have a higher labor market elasticity, engage in less competitive behavior, and often face different legal constraints. Men and women also tend to specialize in different economic activities. For example, men are overrepresented in the army, in mining, and as CEOs, while women are more likely to raise children, have part-time jobs, and work in low-wage occupations. These gender differences are typically ignored in macroeconomic models where the “representative household” is often modeled after a representative man. (A notable exception is Galor and Weil (1996) who were the first to theoretically investigate the implications of a gender wage gap for economic growth.) In my research, I explore to what extent gender differences and interactions between genders have economic consequences. In particular, my work tries to understand whether the interaction between men and women is important for economic development. My research ranges from analyzing polygyny, to the evolution of women’s rights, to sexual behavior in the face of HIV. One outcome of spousal interaction are obviously children, thus, part of my research is dedicated to the positive and normative analysis of fertility.

2. Polygyny and Development

One way in which men and women interact is by marrying each other. Societies differ in their marriage regimes. For example, sub-Saharan Africa has a high incidence of polygyny – men marrying multiple women – a practice that is illegal in most other parts of the world today. Sub-Saharan Africa is also the poorest region of the world.

In “Polygyny, Fertility, and Savings” I argue that polygyny could be a contributing factor to underdevelopment in parts of Africa. In the paper I build a theoretical model of polygyny, where men buy brides, and make fertility and savings decisions. Women obey their fathers and are sold to their future husbands. The theory shows that polygyny leads to high bride-prices to ‘ration’ women, which makes buying wives and selling daughters a good investment, thus crowding out investment in physical assets. The model shows that enforcing monogamy lowers fertility, shrinks the spousal age gap, and reverses the direction of marriage payments. I quantify this effect using data from sub-Saharan African countries. In the calibrated model, I find that banning polygyny decreases fertility by 40 percent and increases savings by 70 percent. The resulting increase in physical capital and drop in labor supply increases GDP per capita by 170 percent.

Given these large benefits, it may seem puzzling why polygyny has not been banned in many countries. To understand the incentives to pass a reform, one may ask who the winners and losers from a marriage reform would be. In “Marriage Laws and Growth in sub-Saharan Africa,” Todd Schoellman and I show that the initial generation of men are clear losers from banning polygyny. In particular, those men who had planned to use the revenues from selling daughters as a retirement fund, would suddenly be deprived of the expected payments. The reason is that a ban on polygyny would lower the demand for brides (and hence daughters) and thereby decrease the price (or even make it negative). But even currently young men would suffer from a reform. They lose the ability to use women as assets and accordingly save more. The increase in savings leads to a large drop in the interest rate, which depresses their lifetime income. Future generations of men, on the other hand, would benefit because the larger capital stock means higher wages, but this effect is not present for currently young men. Therefore, as long as the political power is firmly in the hands of men, a reform would not pass majority voting. If women also voted, a tie would result.

Since enforcing monogamy appears to be difficult both in theory and in reality, in “Polygyny, Women’s Rights, and Development” I investigate an alternative policy: transferring the right of choosing a husband from fathers to daughters. I find that giving daughters more choices has similar economic effects as a ban on polygyny. Both policies decrease the return on wives for men and thereby raise the incentive to invest in alternative assets. This increases the capital stock and hence GDP per capita. Quantitatively, however, enforcing monogamy has much larger effects.

3. Women’s Rights and Development

As my work on polygynous societies shows, more rights for women may be good for development. But why do women have more rights in some countries than in others? Analyzing the evolution of women’s rights in today’s rich countries may help shed some light on this question. The nineteenth century witnessed dramatic improvements in the legal rights of married women in England, the U.S. and several other countries. Given that these improvements took place long before women gained the right to vote, these changes amounted to a voluntary renouncement of power by men. In “Women’s Liberation: What’s in it for Men?” Matthias Doepke and I investigate men’s incentives for sharing power with women. The paper sets up a political economy model of women’s rights. In the model women’s legal rights determine the 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 they care about their own daughters and because an expansion of women’s rights increases educational investments in children. A general increase in education benefits men because it means higher quality spouses for their children. Assuming women care more about children than men, when women have more power, human capital investments in children go up. But then, why would men change their attitude on women’s rights over time? We show that the key factor is the importance of education in the economy. If technology is such that human capital plays no role, then patriarchy is optimal (for men). However, if returns to human capital are high, then the inefficiently low educational investments (and high fertility rates) caused by patriarchy dominate and men prefer to share power. Assuming that technological change increases the importance of human capital over the course of the 19^th century, it is not surprising then that men changed their voting and voluntarily extended some power to women. Once women have more say, human capital investment goes up, which directly translates into a higher growth rate. Thus, our theory generates a two-way interaction between women’s rights and development.

Our argument has several empirical implications. The timing of legal changes should coincide with the onset of mass education. Moreover, it should also go hand in hand with the fertility decline. We document this timing in the data using historical evidence on the expansion of women’s rights in England and the United States.

A key assumption in “Women’s Liberation: What’s in it for Men?” is that mothers care more about children than fathers do and hence invest more in them. There is also a large empirical literature documenting that women spend more money on children than men do. Does it imply that mothers necessarily care more about children than fathers? And does it further imply that targeting transfers to women is good economic policy? In fact, much development policy (such as cash-transfer programs like PROGRESA or micro-credit programs that are targeted exclusively at women) is already based on this premise. In ongoing work with Matthias Doepke we try to address these questions (‘Does Female Empowerment Promote Economic Development?’). We develop a series of non-cooperative family bargaining models to understand what kind of frictions can give rise to the observed empirical relationships and then use the framework to study policy implications.

One interesting finding from our work is that it is possible to construct mechanisms where women spend more on children without assuming that mothers intrinsically care more about children than fathers. For example, when women have lower wages than men, it may be optimal for them to specialize in child care, while men focus on market work. If spending is complementary to the time allocation, then when given a transfer women will spend more on children, while men may spend more on fixing the car, for example. A second possible mechanism is related to product market discrimination. If women are precluded from some markets (e.g. they are not allowed to drive cars in some countries), then they may spend more on children simply because of the lack of other spending opportunities.

We then assess the policy implications of these models. We find that targeting transfers to women can have unintended consequences and may fail to make children better off. In particular, if women spend more on human capital and men more on physical capital, then the growth rate may actually go down when money is taken from men and given to women. In the case of product market discrimination, female empowerment (i.e. eliminating product market discrimination) will lower child spending, since women will use the resources for themselves. Thus, a main conclusion arising from our work is that more measurement and theory is needed to arrive at a robust analysis of gender-based development policies.

4. Normative and Positive Analysis of Fertility

Much of my work on women has implications for fertility. For example, the evolution of women’s rights went hand in hand with a fertility decline. I also argued that banning polygyny would lead to a large drop in fertility. Does it mean that fertility is sometimes inefficiently high? If so, what are the frictions? And does it mean that a policy like banning polygyny would be welfare improving? It is not obvious which welfare concept should be used to answer these questions. In “Efficiency with Endogenous Population Growth,” Mike Golosov, Larry Jones and I generalize the notion of Pareto efficiency to make it applicable to environments with endogenous populations. We propose two different efficiency concepts: P-efficiency and A-efficiency. The two concepts differ in how they treat potential agents that are not born. We show that these concepts are closely related to the notion of Pareto efficiency when fertility is exogenous.

We prove a version of the first welfare theorem for Barro-Becker (1988) type fertility choice models and discuss how this result can be generalized. That is, using our concepts, we show that one can think about inefficiencies in fertility decision-making in much the same way as about other market failures. To show what can go wrong, we study examples of equilibrium settings in which fertility decisions are not efficient, and we classify them into settings where inefficiencies arise inside the family and settings where they arise across families. For example, a global externality, such as pollution, may lead to inefficiently many people being born. The reason is that parents, when making private fertility decisions, do not take into account that they are also producing future polluters. We show that in this context, a standard Pigouvian tax would not be sufficient to address the inefficiency. Rather, both consumption and fertility need to be taxed to assure both the efficient level of pollution and the efficient number of polluters.

Of course other frictions may point in the opposite direction. Concern over extremely low fertility rates is on the agenda of many policy-makers in Europe today. Some countries have introduced generous child benefits to stimulate fertility. Is there an economic rationale for such pro-natalist policies? In “Property Rights and Efficiency in OLG Models with Endogenous Fertility” Alice Schoonbroodt and I analyze this question. Specifically, we propose and analyze a particular market failure that may lead to inefficiently low fertility in equilibrium. The friction is caused by the lack of ownership of children: if parents have no claim to their children’s income, the private benefit from producing a child can be smaller than the social benefit.

We show this point formally in an overlapping-generations model with fertility choice and parental altruism. Ownership is modeled as a minimum constraint on transfers from parents to children. Using the efficiency concepts proposed in “Efficiency with Endogenous Population Growth,” we find that whenever the transfer floor is binding, fertility is lower than socially optimal. We also use our framework to revisit standard results on dynamic inefficiency. We find that when fertility is endogenous, the usual conditions for efficiency are not sufficient. An interest rate higher than population growth no longer guarantees efficiency because now not only over-saving has to be considered, but also ‘under-childbearing.’ Finally, we also find that, in contrast to settings with exogenous fertility, a pay-as-you-go social security system cannot be used to implement efficient allocations. To achieve an efficient outcome, government transfers need to be tied to fertility choice. For example, one could make pension payments depend on fertility choices.

On the positive aspects of fertility, it has often been argued that who has how many children may matter for growth, as shown e.g. in de la Croix and Doepke (2003). It is therefore of interest to analyze the empirical relationship between fertility and income historically. In “An Economic History of Fertility in the U.S.: 1826-1960” Larry Jones and I use data from the US census to document the history of the relationship between fertility choice and key economic indicators at the individual level for women born between 1826 and 1960. Using survey data allows us to construct a measure of cohort fertility, by using self-reported children ever born of a given birth cohort of women. We document several new facts. First, we find a strong negative relationship between income and fertility for all cohorts and estimate an overall income elasticity of about -0.38 for the period. We also find systematic deviations from a time invariant, isoelastic, relationship between income and fertility. The most interesting of these is an increase in the income elasticity of demand for children for the 1876-1880 to 1906-1910 birth cohorts. This implies an increased spread in fertility by income which was followed by a dramatic compression. Second, using our reported fertility measure, we find some interesting deviations from previous work using total fertility rates. The reduction in fertility known as the Demographic Transition (or the Fertility Transition) seems to be much sharper based on cohort fertility measures compared to usual measures like the Total Fertility Rate. Further, the baby boom was not quite as large as suggested by some previous work. These facts should be useful for researchers trying to model fertility.

5. Sexual Behavior and HIV

Another area in which the interaction of men and women is key, is the spread of sexually transmitted diseases such as HIV. About 2.7 million new HIV infections occur each year and roughly 2 million people die of AIDS annually. The most affected continent is Africa, and interestingly about 60% of HIV infected individuals in Africa are women — compared to only about 30% in North America and Western Europe. The reason is that most transmissions within Africa occur through heterosexual sex and, for physiological reasons women face a higher transmission risk. Given the severity of the situation, an obvious question to ask is what are effective prevention policies? Randomized field experiments can only give a partial answer because they necessarily ignore general equilibrium effects. Epidemiological studies, on the other hand, ignore that people may adjust their sexual behavior in response to the policies.

In “An Equilibrium Model of the African HIV/AIDS Epidemic,” Jeremy Greenwood, Philipp Kircher, Cezar Santos and I take a different approach. We build an equilibrium model of sexual behavior to analyze the African HIV/AIDS epidemic. Individuals engage in different types of sexual activity, which vary in their riskiness. When choosing a sexual activity, such as sex without a condom, a person rationally considers its risk. We use data from the epidemic in Malawi to calibrate the model. We study several topical policies, e.g., male circumcision, treatment of other sexually transmitted diseases, and promoting marriage. Several interesting findings emerge. Some of the policies have the potential to backfire: Moderate interventions may actually increase the prevalence of HIV/AIDS, due to shifts in human behavior and equilibrium effects. We also use the model to quantify how much epidemiological studies and field experiments may get it wrong. We simulate field experiments (i.e. treating only a small proportion of the population) and epidemiological studies (i.e. keeping behavior fixed) in our quantitative model. We find that neglecting both equilibrium effects and behavioral adjustments may lead to sizeable over-estimation of the effectiveness of policies.

6. Outlook

Many open questions remain in this research agenda. In addition to legal rights (or lack thereof), note that there are also many traditions and customs that effectively impose constraints on women, such as footbinding and female circumcision. Investigating the origins of such customs and their connection to development is an important avenue for further research. Also, one may look beyond growth and development and analyze the interaction of men and women in the short term. For example, in ongoing work with Gerard van den Berg, we investigate the incidence of domestic violence over the business cycle. Preliminary findings suggest that recessions significantly increase domestic violence. A related, and largely unexplored, question is to what extent family interaction dampens or amplifies the business cycles.

7. References