The Transition to Market Economies in an Endogenous Growth Model with Altruistic Agents.

This paper considers an endogenous transition from a self-sufficient traditional economy to a market economy and its consequences on fertility and growth. The transition can occur if private intergenerational transfers are unable to secure old-age consumption as adequately as savings on capital markets; otherwise individuals stay in the traditional economy unless the mass-production technology in the market economy is sufficiently more advanced than individually accessible technologies. Markets emerge only if per capita output exceeds a certain level given a fixed cost of forming markets. The transition reduces fertility and promotes growth under plausible restrictions. Copyright 1999 by The editors of the Scandinavian Journal of Economics.