Economics 331b Population dynamics in economics 1

Course logistics The enrollment in the course is full. You can participate if you received an from me. There are always appeals for special cases. There is no waiting list. 2

Schedule Wednesday (today): Malthus and Cohen Friday: No class. Nordhaus lecture on Economics of Climate Change, Yale Climate Institute, 12:00 – 1:15, Kroon Hall Monday: no class Wednesday: Solow model with deomgraphy; tipping points Friday: Kremer model Presentations: any volunteers for Kremer, demography, or Cohen would be welcome (Wed and Fri of next week) 3

Importance of population Obviously important part of social sciences In environmental economics, part of the stress on natural systems. Can see in the “Kaya identity”: Pollution ≡ Pop * (GDP/Pop) * (Pollution/GDP), This equation is often used for energy, CO2, and other magnitudes. Warning: It is an identity, not a behavioral equation. It doesn’t explain anything. 4

Different world views on population 1.Malthus-Cohen: population bumping against resources. 2.Solow-Demographic transition: Need to make the big push to get out of the low-level Malthusian trap. 3.Kremer: people are bottled up and just waiting to be the next Mozart or Einstein. 5

Malthusian economics Basic propositions: 1. It may safely be pronounced, therefore, that population, when unchecked, goes on doubling itself every twenty-five years, or increases in a geometrical ratio. 2. It may be fairly pronounced, therefore, that, considering the present average state of the earth, the means of subsistence, under circumstances the most favourable to human industry, could not possibly be made to increase faster than in an arithmetical ratio. 3. Taking the whole earth … and, supposing the present population equal to a thousand millions, the human species would increase as the numbers, 1, 2, 4, 8, 16, 32, 64, 128, 256, and subsistence as 1, 2, 3, 4, 5, 6, 7, 8, 9. In two centuries the population would be to the means of subsistence as 256 to 9 ; in three centuries as 4096 to 13, and in two thousand years the difference would be almost incalculable. 4. In this supposition no limits whatever are placed to the produce of the earth. It may increase for ever and be greater than any assignable quantity; yet still the power of population being in every period so much superior, the increase of the human species can only be kept down to the level of the means of subsistence by the constant operation of the strong law of necessity, acting as a check upon the greater power. [This theory led to Darwin, social Darwinism, poorhouses, and many other social ideas.] 6

7 Review of basic production theory Classical production model. Aggregate production function (for real GDP, Y) (1)Y = F( K, L) Standard assumptions: positive marginal product (PMP), diminishing returns (DR), constant returns to scale (CRTS): CRTS: mY = F( mK, mL) PMP: ∂Y/∂K>0; ∂Y/∂L>0 DR: ∂ 2 Y/∂K 2 <0; ∂ 2 Y/∂L 2 <0

The simplest Malthusian model Production function: (1) Y t = F(L t ) (1M) Y t = F(L t ) = 1 + ln 2 (L t ) Where L = population, B = births, D = deaths, w t = wage rate. Income: Population dynamics (3) and subsistence assumption (4): 8

Demographic transition G.T. Miller, Environmental Science 9

Dynamics 1. Long-run equilibrium when population is constant: (5) P = P* → w = w* → wages at long run subsistence wages. 2. What happens if productivity increases? -If productivity takes a jump, then simply increase P (next slide) -More complicated if have continuous population growth, then can have a growth equilibrium. -Even more complicated if have demographic transition: 10

11 L MPL, Real wage (w) MPL Neoclassical distribution of output/income w* S short-run S longrun MPL’

Malthus with continuous growth Assume Cobb-Douglas production function: This is the major anti-Malthus theorem: Rapid technological change can outstrip population growth even in the subsistence version. 12

Modern Malthusians Left-wing neo-Malthusians : This school that believes we are heading to low consumption because we are exhausting our limited resources (alt., climate change, …). See Limits to Growth, P Ehrlich, The Population Bomb Right-wing neo-Malthusians : This school believe that the “underclass” is breeding us into misery due to overly generous welfare programs. See Charles Murray, Losing Ground: American Social Policy 1950–

Carrying Capacity Basic idea from ecology: the maximum number of individuals that the environmental resources of a given region can support. Demographers have sometimes assumed this applies to the upper limit on human populations that the earth can support. (maximum supportable human population). 14 Source: J. Cohen, “Population Growth…,” Science, 1995.

Alternative methods for estimating carrying capacity 1.Just assume a maximum population density 2.Extrapolate population trends. 3.Single factor model (e.g., food supply) 4.Single factor as function of multiple inputs 5.Multiple factor constraints (P < β water; P < γ food; …) 6.Multiple dynamic and stochastic constraints (P(t) < β water(t) + ε(t) ; P(t) < γ food(t) +ς(t) ; …] [Source: As described in Cohen] 15

Carrying Capacity from Cohen Basic idea is that there is an upper limit on the population that the earth can support. This is a variant of Malthus as follows: Not clear how to interpret (9). One possibility is the maximum L at subsistence wages, which would be MPL(Z)=w*, or in C-D framework: Which means that carrying capacity grows at 16

Economic interpretation of carrying capacity theories Carrying capacity is a concept foreign to economic demography. Is it a normative concept? A descriptive concept? As descriptive, it seems related to Malthusian subsistence wage. Carrying capacity changes over time with technological change. Basic trends in U.S. and rest of world outside of Africa is that technological shifts have outweighed diminishing returns. I.e., clear evidence that because of technological change, carrying capacity has increased over time. As normative, it seems inferior to concept of optimum population. This would be some social welfare function as U(C, L), maximized over L However, introducing L gives serious difficulties to Pareto criterion, which is central normative criterion of economics 17