How Population Control Can Encourage Child Trade

At university today we were talking about the economics of reproduction. The lecturer was talking about how population growth can result in environmental degradation. One student in the lecture suggested that maybe some sort of population control would be good. He was referring to population control similar to that in China where parents can only have one child.

I argued that if government made a rule saying that each family or couple can only have a fixed number of children then this could encourage child trading because of variation in how many children each couple want.

When a couple makes decisions on how many children they want, they look at costs and benefits. The benefits of having children make up the demand curve and the costs make up the supply curve. The supply curve is equal to the marginal cost curve. Costs of having children include the opportunity cost of having children, and this is the fundamental reason why rich people have fewer children than poor people. If a rich person takes care of a child for one hour, he could have gone to work and earned, say, $100. By taking care of a child for an hour the rich person wastes $1000. If a person person takes care of a child for one hour, he could have gone to work and earned, say, $10. The poor person only wastes $10 if he looks after a child for an hour, and so it costs more for a rich person to look after a child.

In figure 1 we have a situation where because of the richer person's higher wage then his marginal cost curves are steeper and let us suppose the optimal number of children a rich person wants is one. The optimal number of children a poor person wants is 3 in this diagram.

The replacement rate is 2.1 children. If each woman has 2.1 children then the population will remain constant in the long run. If each woman has less than 2.1 children then the population will decrease in the long run. So let us suppose government makes it mandatory that all couples must have 2 children. What this does, as you can see in figure 2, is force people away from equilibrium. A poor couple wanted 3 children but can only have 2, so among poor people there is under-supply and over-demand of children. A rich couple wanted 1 child but must have 2, so among rich people there is over-supply and under-demand for children. Rich people then will want to sell their children to poor people. Because a price differential has emerged between two markets, what will likely happen is that a broker, a baby broker, will try to arbitrage to exploit this price differential. The baby broker will purchase children from rich families for a cheap price (because rich people are more willing to sell their children) and then sell these cheap children to poor families who value them more. The process of arbitrage would restore the market to equilibrium, and rich and poor people would be happy. However, my point is that if you have something against trade in babies then you really shouldn't be for population control because the latter encourages the former.