Question # 1
How does the micro development theory of fertility related to the theory
of consumer choice? Do you think that economics incentives
disincentives influence family size decisions? Explain your answer; give
some specific example of such incentives and disincentives.
Answer:
The theory of consumer choice explains the relationship between the preferences and the
expenditure done by the consumer. In other words, it explains how consumer prefers to
maximize the utility subjected to the budget constraint.
The microeconomic theory of fertility is related to the theory of choice in a way that before
planning the child, parents too analyze the cost and benefits of the child they will give birth to.
Yes, economic incentives and disincentives can influence the size of the family. For example, in
the countries such as Nordic countries, where the economy is expanding but the population is
less as per the need, government provide incentives such as maternal and paternal leave, free or
subsidized necessary childcare products. This motivates people to have a large family. Also, it
reduces the prejudices towards girl child as most of the people have in Asian and African
countries.
But, in case, if the government disincentives the people to have a large family such as the
Chinese government, then it discourages people to have a large family. But it also increases the
chances of having illegal children in the country. Some critics argue that the one-child policy of
China has resulted in increasing the number of children which the government does not have any
record. It is because family and hospitals settle the deal in exchange for money. This increased
corruption in the economy.
Question # 2
Describe briefly the essential assumptions and major features of the
Todaro model of rural-urban migration one of the most significant
implications of the model is the paradoxical conclusion that government
policies designed to create more urban employment. Explain the reason
for such a paradoxical result.
Answer:
The Harris-Todaro model of the rural-urban migration process is revisited under an agent-based
approach. The migration of the workers is interpreted as a process of social learning by imitation,
formalized by a computational model. By simulating this model, we observe a transitional
dynamics with continuous growth of the urban fraction of overall population toward equilibrium.
Such equilibrium is characterized by stabilization of rural-urban expected wages differential
(generalized Harris-Todaro equilibrium condition), urban concentration and urban
unemployment. These classic results obtained originally by Harris and Todaro are emergent
properties of our model.
Todaro’s Migration Model:
1. Migration is basically an economic phenomenon.
2. It is a rational decision for the individual to migrate from rural areas to urban areas in search
of job, whether or not they get it.
3. The rural labor (actual or potential) compares their rural earnings with the expected earnings
in the urban areas for a given period of time.
4. This model is applicable only in highly advanced industrialized economies, where there is the
situation of full or near employment.
The Todaro model postulates that migration proceeds in response to urban-rural differences in
expected income rather than actual earnings. The theory assumes that members of the labor
force, both actual and potential, compare their expected incomes for a given time horizon in the
urban sector with prevailing average rural incomes and migrate if the former exceeds the latter.
Talking about the paradoxical conclusion of Todaro that says, “Government policies designed to
create more urban employment” may in fact lead to more urban unemploymentSince there is too
much job seeker, both from rural and urban, the job provided by government.
Conclusion:
In this paper we developed and agent-based computational model which formalizes the rural-
urban allocation of workers as a process of social learning by imitation. We analyze a two-sector
economy composed by adaptive agents, i.e., individuals that grope over time for best sectors
location in terms of earnings. This search is a process of imitation of successful neighbor agents.
The dispersed and non-coordinated individual migration decisions, made based on local
information, generate aggregate regularities. Firstly, the crucial assumption of Harris and
Todaro, the principle that rural-urban migration will occur while the urban expected wage exceed
the rural wage, comes out as spontaneous upshot of interaction among adaptive agents.
Secondly, the migratory dynamics generated by agents that seek to adaptive to the economic
environment that they co-create leads the economy toward a long run equilibrium characterized
by urban concentration with urban unemployment. When this long run equilibrium is reached,
the generalized Harris-Todaro condition is satisfied, i.e., there is a stabilization of the rural-urban
expected wage differential.
Finally, the simulations showed an aggregated pattern not found in the original Harris-Todaro
model. There is the possibility of small fluctuations of the urban share around an average value.
This phenomenon is known as reverse migration.
