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ECO433 Assignment 3

  1. Optimal marital sorting on traits: 40 points Suppose that happiness H of a marital partnership between f and m depends only on the wealth W of the two partners. Consider the following two martial output functions:
    ECO433 Assignment 3
    1. (20) Show whether, in (i) and (ii) respectively, the wealth of the man and the wealth of the woman are substitutes or complements in marital production (or “happiness”).
    2. (10) For a model in which wealth is the only trait that determines marital happiness, which functional form makes more sense to you and why?
    3. (10) Suggest a trait or pair of traits (e.g. Wm could be wealth in stocks and Wf could be wealth in bonds) that would make the other functional form (the one you didn’t choose in (b)) a more realistic representation of the the marital output function of those traits.
  2. Quantity and quality and the demand for children: 40 points
    • (20 points) Explain, from a technical point of view, why quantity and quality of children cannot be too close (or “perfect”) substitutes in order for the quantity/quality theory of demand for children to work.
    • (20 points) Explain, from an intuitive point of view, why quantity and quality of children are not likely to be very close substitutes (put another way: are likely to be fairly complementary) in the production of parental happiness.
  3. Parental investments in children: 20 points

Using the notes from chapter 6, use equations (1) and (2) on slide 3 to derive “family income” S and the parents’ budget constraint at time t in terms of Z and It+1 (equation (*)). Interpret (∗) and explain how it differs from equation (1).

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