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1

Supplement to Chapter 4 in Galor.

This note goes through the mathematical models of the chapter. These relate to three
of the main hypotheses of the demographic transition. These are (1) The demographic
transition was caused by increases in income; (2) the demographic transition was caused
by declines in mortality; (3) the increased demand for human capital. These three are
covered in the following. The note is best read in conjunction with Galors book.

1.1

The rise in income per capita: non-robustness result

The central hypothesis is that the decline in fertility observed in the late 19th century
was caused by increased income due to the industrialization. The following model shows
that this result is not theoretically robust. Consider a consumer who obtains utility from
consumption (c) and surving children (n):

u=

ln n + (1

) ln c

The constraint is:

c = (1
where

n) y;

is the time cost associated with raising a child and y is the income earned if

all time is spent on working.


The utility function can be written:

u =

ln n + (1

) ln ((1

n) y)

u =

ln n + (1

) ln (1

n) + (1

Dierentiating the utility function wrt to n gives:

) ln y

1
+ (1
n

1
1

) = 0
1
= (1
n
n) = (1

(1

n =

1
) n

n =
The number of children is unrelated to income in this model. Thus, theoretically
we would not expect that the opportunity cost of children (related to income growth)
necessarily plays a role in the timing of the fertility decline.

1.2

The decline in Infant and Child Mortality

This hypothesis suggests that the decline in infant and child mortality that preceded the
fertility decline is a plausible explanation of the onset of the demographic transition. The
hypothesis can be illustrated in the framework of the previous sections by making the
number of surviving children a function of the probability of surviving infancy

and the

number of children the household will bear nb :

n = nb :
Let utility maximization problem be the same as in the previous subsection. Therefore,
the solution for n is:

n=

The actual number of children is then:

nb =
It is seen that an increase in

leads to a lower number of children being born. In the

absence of uncertainty, there is, however, no eect on the surviving number of children.
2

Thus, the central prediction is that higher mortality rates (lower ) leads to higher fertility
rates, whereas the number of surviving children is unchanged.

1.3

The rise in demand for Human Capital

The second phase of industrialization witnessed a signicant increase in the demand for
human capital. The increased demand for human capital led families to invest in the
education of their children according to this hypothesis. Thus, the argument is that the
increased demand for human capital led to a quantity-quality trade-o.
The idea can be illustrated by considering the following utility maximization problem:

u = (1

) ln c + ln n +

ln h;

where h is the level of human capital of each child, and 0 <

< 1 and 0 <

< 1. The

time cost of raising a child with a level of education e is:

y(
where

e) ;

is the fraction of the households unit-endowment that is required to raise a

child, regardless of quality, and

is the fraction of the households unit time endowment

that is required for each unit of education per child.


The budget constraint is then:

yn (
where y (

e) + c

y;

e) is the opportunity cost associated with raising a child.

The level of human capital is determined by:

h = h (e; g) :
which is an increasing, strictly concave function in e (he > 0, hee < 0) and decreasing, strictly convex in gthe rate of technical progress (hg < 0; hgg > 0): The following
assumptions are made:

lim he (e; g) = 1:

e!0

lim he (e; g) = 0

e!1

h(0; g) > 0:
The eect of g is an obsolence is eect. Technological change means that some education
is made obsolete. Further heg (e; g) > 0.
The utility maximization problem can be rewritten as:

maxu = (1
e;n

(1

) ln ((1

n(

) ln y + (1

e) y) + ln n +

) ln(1

n(

ln h (e; g) =

e)) + ln n +

ln h (e; g) :

The rst order conditions become:

1
1
@u
= (1
)
( ( q + e e)) +
= 0:
q
e
@n
1 n ( + e)
n
1
1
@u
=
he (e; g)
n e = 0:
@e
h (e; g)
1 n ( q + e e)
The solution for n is:

n=

ee

Now the second condition can be rewritten:


1
he (e; g) =
h (e; g)
1

1
n(

e e)

n e:

By substituting the solution for n into this expression, we get:

1
he (e; g)
h (e; g)
1
he (e; g)
h (e; g)
1
he (e; g)
h (e; g)
e
h (e; g)

1
1
=
1

q + ee

ee

e
q

ee

1
e
e
+ e
he (e; g) ( q +

e e)

e) :

It can be established generally that an optimal solution for e and n exists:

e = e(g; ;
n =

):

e e(g;

e;

q)

To establish this we dene the implicit function as determined by the necessary rst
order condition:

G (e; g; ;

h (e; g)

he (e; g) (

e) = 0

The assumptions on he (e; g) implies that:

limG (e; g; ;

) < 0

lim G (e; g; ;

) > 0

e!0
e!1

This follows from the fact that as e ! 0,he ! 1 (and h(0; g) > 0). Further, as e! 1,
h (e; g) will converge at a positive value (if strictly increasing, it will go towards innity)
and he (e; g) converges to 0.
Further, we can establish that:

@G (e; g; ;
@e

= (1

he (e; g)
)

hee (e; g) (

he (e; g)
5

e)

hee (e; g) (

he (e; g)
e

e) > 0:

Since 0 <

< 1 and hee < 0: Thus the G(:) function is strictly increasing in e between

values of G(:) less than or greater than zero, and by the intermediate value theorem a
solution exists for e at which G(:) is exactly zero.
The intermediate value theorem says:
Theorem 1 Let f be a function continuous on [a,b] and assume that f (a) and f (b) have
opposite signs. Then there is at least one c 2 (a; b) such that f (c) = 0:
In our case, we have that the function has negative values when e is close to zero and
positive values for large values of e. Thus, we can let a be close to 0 and b to some large
enough value where the function has become positive (which it will because it is strictly
increasing). This implies that a value of e > 0 will make G(:) = 0:
Given this we can now sign how this value of e responds to the other parameters in
the model by simply using the implicit function theorem. Recall that the average product
of a strictly, increasing and concave function decreases with the value of the independent
variable. In our case, this means:
h
e

@e

ehe

h (e; g)
<0
e2

This implies that:

h(e; g) > ehe :


This is used to establish the sign of the derivative wrt

below:

We next obtain the following derivates and their signs:


@G (e; g; ;
@g

hg (e; g)

heg (e; g) (

Since hg < 0 and heg > 0:


@G (e; g; ;
@

@G (e; g; ;
@ q

=
;

he (e; g) (
)

e) < 0

he (e; g) < 0:

e) < 0

Notice that there is a


above formula for

@G(g; ;
@ q

too much in Galors formula on page 138 compared to the

q ; e)

@G (e; g; ;
@ e

= h (e; g)

Which uses h(e; g) > ehe : > ehe since 0 <

he (e; g) e > 0:

< 1:We need to use the implicit function

theorem which is summarized in the following:


Theorem 2 Let G (x1 ; x2 ; :::; xk ; y ) be a dierentiable function around the point ( x1 ; x2 ; :::; xk ; y ):
Suppose further that

G (x1 ; x2 ; :::; xk ; y ) = c
@G (x1 ; x2 ; :::; xk ; y )
6
=
0:
@y
Then the partial derivative of xi around the point can be found as:
@y (x1 ; x2 ; :::; xk )
=
@xi

@G(x1 ;x2 ;:::;xk ;y


@xi

@G(x1 ;x2 ;:::;xk ;y


@y

We next apply the implicit function theorem to get the partial eects on the optimal
level of e (corresponding to y in the theorem).
@e
=
@g

@G (e; g; ;
@g

@e
=
@

@G (e; g; ;
@

@e
=
@ q
@e
=
@ e

@G (e; g; ;
@ q

) @G (e; g; ;
=
@e

@G (e; g; ;
@ e

) @G (e; g; ;
=
@e

) @G (e; g; ;
=
@e
) @G (e; g; ;
=
@e

>0

>0

>0

< 0:

These results are summarized in Galors Lemma 4.1. He also derives expressions for
the eect on the number of children which are easily obtained using the above results;
7

n=

e e(g;

e;

q)

This can be dierentiated partially with respect to the four variables:


e @e
@g

@n
=
@g

@n
=
@
@n
=
@ q
The eect of

e e(g;

e;

q )]2

e;

q )]2

e @e
]
@ q
; e;

q )]2

e @e
@

e e(g;

[1 +
[

e e(g;

< 0:

<0

< 0:

is indeterminate, but if [@e=@ e ][ e =e] >

1 then that derivate is

negative:
@n
=
@ e
1.3.1

[e +
[

e e(g;

e @e
]
@ e
; e;

q )]2

@e e
]
@ e e
e e(g; ; e ; q )]2

e[1 +
q

< 0:

Example based on Lagerlf (2006)

To illustrate the "human capital model", we can use the following function taken from
Lagerlf (2006):
e

h (e; g) =
For simplicity, we assume

e+
ee +

= 1 (and

+g

= 1 in the utility function). The function

then becomes:

h (e; g) =

e+
e+

q
q

+g

The model predicts that increased g leads to increased e and decreased n, and using
the rst order condition for utility maximization, the positive solution to e is:

e=

p
g (1

Where we make the assumption that g

g^ =

(1

which ensures e

0: It is easily

seen that this function is increasing in g the rate of technological growth, and that n is
decreasing in e and hence g:

References
[1] Lagerlf, N.-P., 2006. The Galor-Weil model revisited: a quantitative exercise. Review
of Economic Dynamics 9(1), 116-142.