Nova workboard

a blog from young economists at Nova SBE


Should fertility be considered a public good?

Nowadays a huge debate is being discussed in Italy after the introduction of the “Fertility day”, promoted by the Health Minister Beatrice Lorenzin. This day was thought to stress public attention to the importance of fertility and to underline the danger of falling country birth rates. The reaction has been fierce, with many questioning if there may exist a better way to encourage people to have children.

Actually what has caused such an anger is not just the idea of procreation as a matter for the government to intervene in, but the images associated with women’s role, considered as sexist and ageist[1].

Despite moral criticism, it is important to see the question from an economic point of view. Are we sure that “fertility” should be considered as a public good?  Economists are used to refer to public good as a non-rivalrous and non-excludable item. It is basically a product that one individual can consume or enjoy without limiting its availability to any other individual. Public goods are, by definition, provided by the mean of government in order to avoid free riding issues. In that sense “fertility” is not a public good because there is no direct intervention from a central authority. Neither the intervention seems to be needed as a way to repair a market failure. There is no market failure in having too few children. Most people may agree that having a child is a very personal decision based on own values, circumstances and life or career goals. Some people want to have children, some do not, some might only want them later: all choices are equally logic. One may say that people are free to set their own level of children, even if it is zero, and that government should not intervene in this kind of decision. It should NOT, but it is forced to. Because low birth rate is a primary concern to government and to society as a whole. As a matter of fact, many countries are experiencing the problems of an ageing population and have taken measures to try to influence their birth rates since these affect pension system and standard of living[2]. If a country succeeds in setting an optimum level of population, then their people will have a better quality of life due to an increase in services, infrastructures, incomes. But there are still many implications on the public finance side. One of them is a redistribution issue: if maternity and housing benefits will be provided with taxation then people who are not keen on having a child (because they don’t want or they cannot) will subsidize the couples with a parenthood willingness. Another question would be: is it better to offer cash transfer in order to pay children stuff or to provide in kind services as healthcare and nursery? It’s clear that this phenomenon involves all of us, besides the weak economic framework that is triggering our society by a decade. Roughly speaking, the decision of having a child affects also the ones who do not.

Many weird proposals had been already thought such as giving a flyer about how to flirt (South Korea), divulgate fairytales (Japan) or invite couples to take a holiday (Denmark)[3] but in the meanwhile, population continues to age, affecting all welfare state and above all social security and pension system.

Thus “fertility” may be not a public good, but rather a public concern.

[1] https://www.theguardian.com/commentisfree/2016/sep/05/italys-fertility-day-posters-sexist-echoes-of-fascist-past

 

[2] http://www.oecdobserver.org/news/archivestory.php/aid/563/Can_governments_influence_population_growth_.html

 

[3] http://mentalfloss.com/article/33485/6-creative-ways-countries-have-tried-their-birth-rates

 

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Democratic Game

Revealed Preferences & Distortions on Public Choice

Voting is the most sensible expression of social will. It enables people to decide and reveal preferences about politicians’ acts, policies’ effects and different levels of public intervention. This post pretends to link some crucial concepts that we study in Microeconomics course, explain why sometimes democracy gives unexpected results and how important are the assumptions of revealed and well-behaved preferences.

Combining equity problems, behavioural distortions and market failures, the Public Choice analysis is one of the most challenging economic exercises which considers an interaction of three different levels:

  • Individuals who have preferences and want to maximize their welfare through public and private consumption (considering a budget constraint in which taxes are included as the indirect counterpart from public provision).
  • The Social Institutions that want to maximize Social Welfare and find an equilibrium, which can be different from the individual optimal solution.
  • Politicians, more benevolent or more selfish, who want to be infinitely re-elected by pleasing their voters (who can punish politicians if they deviate).

Although each politician has its own ideology and ethical belief, economists have tried to find a way to explain people’s desires and performances in the electoral game The rules are simple: citizens have different needs and they are willing to pay for welfare. However, payers and beneficiaries are seldom the same, moreover, free riders and externalities insist on stiffening our problem, which may lead to under-provision.

The most difficult analysis is to reveal preferences and to aggregate them in order to define the most important function, which tells us what people need and how they value it. In the real world, it is completely impossible to design a beautiful utility function or continuous indifference curves, linking bundles with the same value for citizens. Therefore, governments may ask voters to define their preferences (and the easiest way to do so is) by ranking bundles or options with the help of public surveys or referendums. Actually, politicians have the incentive to reveal citizen’s preferences in order to prepare persuasive speeches and move themselves to a good place in the Downs Avenue.

Nevertheless, even if we could solve all these problems and know exactly the marginal value of public provision for all individuals, democracy would still have distortions sorting out electoral choices and ‘right choices’. Therefore, it is relevant to present the most famous Electoral Paradoxes and their contradictory results:

Condorcet’s Paradox, the most popular of all, presents a situation in which a majority election over pairs of alternatives may have no clear winner. Suppose that A, B and C are possible choices and each voter orders his preferences as the following:

Captura de ecrã 2013-10-19, às 06.23.58

After beating the first winner (A), C becomes the final winner. However, would this result be the same if the fist election opposed A and C? No, because C would be the first winner and would lose against B (1+2 vs 3). In the Condorcet’s Election, the Voting Agenda determines the result (the winner is always the last voted choice).

Ostragorki’s Paradox involves the role of political parties as mediators of Public Choice. Supposing two parties (X and Y) and each individual voting for the party whose position is closest to his own:

Captura de ecrã 2013-10-19, às 06.24.06

Issue-by-issue, party X would win on every subject. However, if people choose parties to represent them, a majority of voters will elect party Y. This paradox presents one of the failures of the representativeness of parties.

The Additional Support Paradox considers strategic voting (of 21 voters) in a majority runoff election (the winner must have 11 votes, otherwise there is a second round between the two most voted).

Captura de ecrã 2013-10-19, às 06.24.14

In the first election, there is no absolute majority. Then, a runoff is held between choices B and C. It is easy to conclude that the winner is B (13 – 8).

Now, imagine that B receives the additional support from three ‘C-voters’. Still, we have no majority and the runoff will oppose choices A and B. Now, the final winner is A (11 – 10), despite of the additional support B has received.

When we think about Democracy, we will find many imperfections such as preference revelation problems, free-riding effects, electoral paradoxes, imperfect information problems, crowd psychological effects and general lack of trust on politicians. However, more than failures, these are challenges to solve with perseverance and always keeping in mind Winston Churchill’s words:

“Democracy is the worst form of government, except for all those other forms that have been tried from time to time.”

Dino Alves  # 607