A stochastic model of mortality, fertility, and human capital investment

This paper examines the relationship between fertility and human capital investment and its implications for economic growth, focusing on the effects of declining mortality. Unlike the existing literature, this paper stresses the role of uncertainty about the number of surviving children. If the marginal utility of a surviving child is convex, then there will be a precautionary demand for children. As the mortality rate and thus, uncertainty fall, this demand decreases. Furthermore, lower mortality encourages educational investment in children. The key result is that this empirically observed quality–quantity trade-off is realized only if uncertainty is incorporated into individual’s optimization problem. D 2002 Elsevier Science B.V. All rights reserved. JEL classification: O40; I12; J11; J13