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Mr. Barnett is at the Economics Department, Villanova University and Mr. Espinosa-Vega is at the International Monetary Fund. Early versions of this paper were presented at the Society of Economic Dynamics Meetings, the Midwest Economic Theory Meetings, the Midwest Macroeconomic Meetings, the Latin American Meetings of the Econometric Society, Southern Methodist University, Villanova University, and the Minnesota International Economics and Development Conference. We thank the participants of these conferences and seminars, along with Merwan Engineer, Richard Grabowski, Ian King, Peter Rangazas, and Randall Wright, for their helpful comments and discussion. The views expressed in this paper are those of the authors and do not necessarily represent those of the IMF or IMF policy. Remaining errors are ours.
We use one-sided altruism and restrictions on certain trades in credit to preserve the lifecycle properties of the underlying overlapping generations model. When such constraints are either absent or not binding, the model resembles an infinite-lived representative agent model: the steady-state effective return to capital is pinned down by the preference parameters of the model and capital barriers have no impact on the allocation of the child’s time. This very last outcome also obtains (for different reasons) when intergenerational trades (bequests) are not permitted and the MCR = 0.
There is some evidence that a sizable portion of child labor is the result of families using a child as a means to augment family income and not simply to ensure a minimum sustainable consumption level. For example, recent surveys of ground transport, battery recharging-recycling, and welding establishments in Bangladesh report that nearly two-thirds of the children working in these industries live in a house owned by their families. Most report that only part of their earnings are given to their families. About half report spending their leisure time watching TV (Bangladesh Bureau of Statistics, 2004a, 2004b, 2004c).
There are some clear exceptions to these extensions. High child labor participation rates in agriculture, for example, are more likely due to inadequate school facilities in rural areas and to the skill levels required for many agricultural tasks. While recent bans by developed countries on imports of products made with child labor have made it more difficult for children in many developing countries to find employment in formal export sectors, the enforcement of child labor laws in other formal sectors is mixed.
For simplicity, we assume agents do not consume when young.
Our treatment of intergenerational transfers follows Rangazas (2000). A more standard approach assumes transfers between parent and child are made directly (not via the capital market) when the parent is old. This alternative, however, does not change the paper’s main results.
Rangazas (2000) make a similar point. In our specific case, it is easy to show the parent underinvests in the child’s education (as compared with a similar problem which allows the child to choose to invest earnings wt or to forgo work in favor of schooling) provided condition (F-2) holds with a strict inequality.
Throughout, we assume the existence of the steady state.
We could find no numerical example where equilibrium r falls with an increase in π.
The elasticity of intertemporal substitution ε in this example ranges from .940 to .456; by contrast, when the MCR = 0, the elasticity is 1/.90 ≈1.111.
In the case with a high barrier, a partial ban on child labor would provide greater output and higher utility than obtained under no ban or under a total ban.