Altruism, environmental externality and fertility

We investigate the interaction between environmental quality and fertility in an altruistic bequest model with pollution externalities created by the aggregate production. Despite the negative externality related to the endogenous childbearing decisions, parents may choose to have fewer children in the competitive economy than in the social optimum. To achieve optimality, positive taxes on childbearing are required even with an insufficient number of children, if the social discount factor equals the parents' degree of altruism. On the other hand, child allowances may constitute the optimal policy if the social discount factor exceeds the parents' degree of altruism.