EXTERNALITIES OF POPULATION CHANGE

By externalities researchers mean those effects of human activities that occur without the agreement of the people who are affected. Logging in the upland forests of watersheds can cause water runoff and inflict damage on farmers and fishermen in the lowlands. The damage is an externality if those who suffer damage are not compensated by mutual agreement. Free-riding on the common property resources is another example of an activity that gives rise to externalities. The former example involves a "unidirectional" externality, while the latter reflects "reciprocal" externalities.

The above are examples of "external disbenefits." In contrast, when someone becomes literate at his own cost, he benefits not only himself, but also those others who are now able to correspond with him. This is an example of an "external benefit." More generally, the private production of public goods involves (reciprocal) external benefits.

The Theory of Externalities

The theory of externalities was discussed first by the economists A.C. Pigou (1920) and Erik Lindahl (1928). They noted that there is an over-supply of activities inflicting external disbenefits and an under-supply of activities conferring external benefits. Pigou in particular noted that externalities reflect a wedge between the (net) private and social benefits of human activities, the wedge being symptomatic of economic inefficiency. As remedy, Pigou suggested government intervention in the form of taxes and subsidies on the production of external disbenefits and benefits, respectively. Lindahl in contrast provided an outline of markets for externalities, assuming that such markets could be established. Lindahl noted that if the markets were efficient, they would eliminate the externalities. Ronald Coase (1960) generalized Lindahl's idea and stressed that even the direction of an externality (who affects whom) is a reflection of the structure of property rights. He argued, for example, that if the law recognizes polluters' rights, a negotiated settlement would have the lowland farmers and fishermen pay the upland firms to reduce logging. On the other hand, if the law recognizes pollutees' rights, a negotiated settlement would have the logging firm pay the farmers and fishermen for the right to engage in logging. Coase argued that in the absence of transaction costs there could be no externalities, because the parties would negotiate their way to an efficient allocation of resources (Coase's claim, even though seemingly tautological, is questionable, as shown by Kenneth Arrow [1971] and David Starrett [1973]). However, the externality would prevail if the costs of negotiation were prohibitive and the state remained aloof from the problem. In short, Coase argued that externalities are symptomatic of institutional failure.

Until recently economists did not take externalities seriously. Economics textbooks relegated the subject to later chapters. In the twenty-first century, however, studies on externalities abound, in large measure owing to a recognition that they are a key ingredient of environmental problems.

Reproductive and Environmental Externalities

The theory of externalities can be employed to explain the high fertility prevailing in many of the poorest regions of the contemporary world. This is done in a series of publications by Partha Dasgupta (1993, 1995, 2000), using the working hypothesis that people's reproductive decisions are based on their own interest but that the outcomes are inefficient because of reproductive or environmental externalities.

What could cause the private and social costs and benefits of reproduction to differ? Large-scale migrations of populations occasioned by crop failure, war, or other disturbances are an obvious form of externality. But by their very nature they are not persistent. Of those that are persistent, four deserve special mention: crowding, cost-sharing, interactions among institutions, and contagion.

Crowding. One likely source of externality is the finiteness of space. Increased population size implies greater crowding. Space being a common property, households acting on their own would not be expected to take into account the crowding externalities they inflict on others. The local commons in rural areas of poor countries offer an illustration. The private costs of having children are less than the social costs if the extent to which households have access to the commons is independent of household size. Crowding externalities favor high fertility.

Cost-sharing. Fertility behavior is influenced by the structure of property rights (e.g., rules of inheritance). In his analysis of fertility differences between preindustrial seventeenth-and eighteenth-century Northwest Europe, on the one hand, and Asiatic preindustrial societies on the other, the statistician John Hajnal (1982) distinguished between "nuclear" and "joint" household systems. He observed that in Northwest Europe marriage normally meant establishing a new household, which implied that the couple had to have, by saving or transfer, sufficient resources to establish and equip the new residence. This requirement in turn led to late ages at marriages. It also meant that parents bore the cost of rearing their children. Indeed, fertility rates in England averaged around the relatively low level of four children per woman in the years between 1650 and 1710, long before modern family planning techniques became available and long before women became widely literate (Coale, 1969; Wrigley and Scho-field, 1981). Hajnal contrasted this with the Asiatic pattern of household formation, which he saw as joint units consisting of more than one couple and their children.

Parental costs of procreation are also lower when the cost of rearing the child is shared among the kinship. In sub-Saharan Africa fosterage within the kinship group is commonplace: children are not raised solely by their parents. The shared childrearing responsibility creates a free-rider problem if the parents' share of the benefits from having children exceeds their share of the costs. From the point of view of parents collectively, too many children are produced in these circumstances. In sub-Saharan Africa, communal land tenure within the lineage social structure has in the past offered further inducement for men to procreate. Moreover, conjugal bonds are frequently weak, so fathers often do not bear the costs of siring children. Weak conjugal bonds, communal land tenure, and a strong kinship support system of children, taken together, result in high fertility.

Interactions among institutions. Externalities are prevalent when market and nonmarket institutions co-exist. How and why might such externalities affect fertility behavior? A number of pathways suggest themselves.

When established long-term relationships break down, people look for alternatives to further their economic opportunities. The growth of markets in towns and cities, by making children less reliable as an investment for old age, can lead to a reduction in fertility. On the other hand, those who face particularly stressful circumstances may resort to draconian measures to build new economic channels. The anthropologist Jane Guyer (1994) has observed that in the face of deteriorating economic circumstances, some women in a Yoruba area of Nigeria have borne children by different men so as to create immediate lateral links with them. Polyandrous motherhood enables women to have access to more than one resource network.

Mead Cain (1981, 1983) showed that where capital markets are nonexistent and public or community support for the elderly are weak, children provide security in old age. The converse is that if communitarian support systems decline, children become more valuable. But communitarian support systems in rural areas may degrade with the growth of markets in cities and towns. So there is a curious causal chain here: growth of markets in towns and cities can lead to an increase in fertility in poor villages, other things being the same. There is scattered evidence of this. N. Heyzer (1996) has observed that one half of the total forest area in Sarawak, Malaysia, has now been lost, disrupting the lives of indigenous people in different ways. Communities that lived in the heart of the forest were most severely affected, while others, living near towns, were able to turn from swidden agriculture to wage labor. This transformation, however, involved male migration, leaving women behind to cope with a decreasing resource base. As subsistence alternatives declined, children became one of the few remaining resources that women could control. There was thus a new motivation for having children: to help their mothers with an increased workload.

Conformity and "contagion." That children are seen as an end in themselves provides another mechanism by which reasoned fertility decisions at the household can lead to an unsatisfactory outcome for the collectivity of all households. The mechanism arises when traditional practice is perpetuated by conformity. Procreation in closely-knit communities is not only a private matter, it is also a social activity, influenced by both family experiences and the cultural milieu. Behavior is conformist if, other things being equal, each household's most desired family size is the greater, the larger is the average family size in the community. So, conformism is the source of an externality (one person's behavior influences another's desires).

There can be many reasons for conformist behavior. Whatever the reason, there would be practices encouraging high fertility rates that no household would unilaterally desire to break. Thus, so long as all others follow the practice and aim at large family size, no household on its own would wish to deviate from the practice. However, if all other households were to restrict their fertility rates, each would desire to restrict its fertility rate as well. In short, conformism can be a reason for the existence of multiple reproductive equilibria. Moreover, a community could get stuck at one mode of behavior even though another (equilibrium) mode of behavior would be better for all. Social systems involving conformist behavior are called "coordination games." The reference group that influences individual behavior expands as newspapers, radio, television, and the Internet transmit information about other lifestyles.

Dasgupta (2000) has shown that such pathways can give rise to demographic transitions: fertility rates display little to no trend over extended periods, only to cascade downward over a relatively short interval of time, giving rise to the classic logistic curve of diffusion processes.

Demographers have made few attempts to discover evidence of behavior that is guided in part by an attention to others. In an exception to this neglect, Richard Easterlin, R. Pollak and M. Wachter (1980) studied intergenerational influence in a sample of families in the United States, reporting a positive link between the number of children with whom someone had been raised and the number of children they themselves had. Another exception is the study by Susan Cotts Watkins (1990) of demographic change in Western Europe over the period from 1870 to 1960. Watkins showed that in 1870, before the large-scale declines in marital fertility had begun, demographic behavior differed greatly among provinces (e.g., counties and cantons) but differences within provinces were low–suggesting an influence of local communities on behavior. By 1960 inter-provincial differences had narrowed, a convergence she explains in terms of increases in the geographical reach of national governments and the spread of national languages.

A study in Bangladesh could also point to contagious behavior. An experimental birth control program in Matlab Thana, Bangladesh, showed both a substantial rise in contraceptive use in villages offered intensive services and a modest rise in its use in the set of "control" villages that were offered no such special services. The uptake was reflected in the fertility rates, which declined in both sets of villages but faster in the treatment area. The new fertility behavior spread to the control villages, but the contagion was less than complete.

See also: Common Property Resources; Cost of Children; Intergenerational Transfers; Population Policy.

bibliography

Arrow, K. J. 1971. "Political and Economic Evaluation of Social Effects of Externalities." In Frontiers of Quantitative Economics, ed. M. Intriligator. Amsterdam: North Holland

Baumol, W. M., and W. Oates 1975. The Theory of Environmental Policy. Englewood Cliffs, NJ: Prentice-Hall.

Bongaarts, J., and S. C. Watkins. 1996. "Social Interactions and Contemporary Fertility Transitions." Population and Development Review 22(4): 639–682.

Cain, M. 1981. "Risk and Insurance: Perspectives on Fertility and Agrarian Change in India and Bangladesh." Population and Development Review 7(3): 435–474.

Cain, M. 1983. "Fertility as an Adjustment to Risk." Population and Development Review 9(4): 688–702.

Caldwell, J. C., and P. Caldwell. 1990. "High Fertility in Sub-Saharan Africa." Scientific American 262 (5): 82–89.

Coale, A. J. 1969. "The Decline of Fertility in Europe from the French Revolution to World War II." In Fertility and Family Planning: A World View, ed. S. J. Behrman, L. Corsa, and R. Freedman. Ann Arbor: University of Michigan Press.

Coase, R. 1960. "The Problem of Social Cost." Journal of Law and Economics 3.

Dasgupta, P. 1993. An Inquiry into Well-Being and Destitution. Oxford: Clarendon Press.

——. 1995. "The Population Problem: Theory and Evidence." Journal of Economic Literature 33(4): 1,879–1,902.

——. 2000. "Population and Resources: An Exploration of Reproductive and Environmental Externalities." Population and Development Review 26(4): 643–689.

Easterlin, R., R. Pollak, and M. Wachter. 1980. "Toward a More General Model of Fertility Determination: Endogenous Preferences and Natural Fertility." In Population and Economic Change in Developing Countries, ed. R. Easterlin. Chicago: University of Chicago Press.

Guyer, J. L. 1994. "Lineal Identities and Lateral Networks: The Logic of Polyandrous Motherhood." In Nupitality in Sub-Saharan Africa: Contemporary Anthropological and Demographic Perspectives, eds. C. Bledsoe and G. Pison. Oxford: Clarendon Press.

Hajnal, J. 1982. "Two Kinds of Preindustrial Household Formation Systems." Population and Development Review 8(3): 449–494.

Heyser, N. 1996. Gender, Population and Environment in the Context of Deforestation: A MalaysianCase Study. Geneva: United Nations Research Institute for Social Development.

Hill, K. 1992. "Fertility and Mortality Trends in the Developing World." Ambio 21(1): 79–83.

Lindahl, E. 1958. "Some Controversial Questions in the Theory of Taxation." In Classics in the Theory of Public Finance, ed. R. A. Musgrave and A.T. Peacock. London: Macmillan.

Mäler, K.-G. 1974. Environmental Economics: A Theoretical Enquiry. Baltimore: Johns Hopkins University Press.

Meade, J. E. 1973. The Theory of Externalities. Geneva: Institute Universitaire de Hautes Etudes Internationales.

Pigou, A. C. 1920. The Economics of Welfare. London: Macmillan.

Starrett, D. 1972. "Fundamental Non-Convexities in the Theory of Externalities." Journal of Economic Theory 4(1): 180–199.

Starrett, D. A. 1973. "A Note on Externalities and the Core." Econometrica 41(1): 179–183.

Watkins, S. C. 1990. "From Local to National Communities: The Transformation of Demographic Regions in Western Europe 1870–1960." Population and Development Review 16(2): 241–72.

Wrigley, E. A., and R. S. Schofield. 1981. The Population History of England 1541–1871: A Reconstruction. Cambridge, Eng.: Edward Arnold.

Partha Dasgupta