LOOKING AT THE "POPULATION PROBLEM" THROUGH THE PRISM OF HETEROGENEITY: WELFARE AND POLICY ANALYSES

Upon introducing heterogeneity and dynamics into a model of the demand for children, a problem of optimal population is defined and analyzed. It is shown that from the perspective of social welfare, better-educated individuals produce too few children while less-educated individuals produce too many children and all individuals invest too little in the education of their children. The impact of several policy tools geared at addressing the "population problem" is investigated, in particular how child allowances and other tax-subsidy policies can be harnessed to enhance welfare, and how and why early childhood education programs can mitigate the "population problem." Copyright © 2008 the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.