In addition to our personal joy of having children, to which we seem to be more or less genetically programmed (Dasgupta, 1993; p. 356), the motivation for having children can indeed be considered an economic one. Children can provide labor that will benefit the household; they can provide care for parents in old age; and they may be an instrument of altruism from parent to child (Barro and Becker, 1989). Another motivation for having children is the expectation of receiving altruistic intergenerational transfers from one’s children after retirement (Ehrlich and Lui, 1991; Wigger, 2002). Higher capital savings would substitute these intergenerational transfers to the effect of lowering the transfer rate and further reducing the need for having children as an old age security “device”.<sup>5</sup> Concurrent with the child survival response, parents also face the quantity/ quality trade-off (Galor and Weil, 1996, 2000). With a fixed amount of resources available to devote to the children of the household, parents make the decision to have many (few) children and invest little (more) in each. The incentive for the latter will grow as the return to human capital increases parallel to the technological development. In this paper, we abstract from human capital investments since the effects thereof are well established.

Improved adult health (proxied in the literature by higher life expectancy; longer retirement period) is generally found to have an increasing effect on output per capita (see, e.g., Bloom et al., 2007, Chakraborty, 2004, Jensen and Jorgensen, 2008, Jorgensen and Jensen, 2009). In the presence of perfect capital markets and no social security arrangement, we would envision longer life expectancy to have no effect on the savings rate as the extension of working life is proportional to the extension of life expectancy. However, in the presence of social security arrangements, where the retirement age is fixed, an increase in life expectancy increases the years of retirement disproportionately to the working years. This is a case where the intertemporal prices of consumption in the first relative to the second period change, and if they do not change in equal proportions then the savings rate will be affected (Chang, 1990; Jensen and Jorgensen, 2008, Jorgensen and Jensen, 2009).<sup>6</sup> Higher adult survival can also have incentive effects that may be important for capital savings: investments in human capital will be encouraged as the time horizon over which returns to investment can be earned is extended (Weil, 2007; Finlay, 2006). Adult survival may also represent a proxy for experience: the longer one is alive the larger the work experience. Although this theory is dispelled by Bloom et al. (2004), who control for labor market experience, they found that increased adult survival

> 5 The choice of how many children to have is, to a large extent, a function of child survival (Pritchett, 1994; Barro and Becker, 1989) and of access to family planning (Bongaarts, 1990, 1994). A family plan to have their desired number of (live) children, and in an environment of high child mortality the differential between the number of desired children and births widens (Fink, 2007). As the child survival rate improves, families need fewer births to achieve their desired number of children.

> 6 The retirement age as a policy instrument could be adjusted to offset this effect (Jensen and Jorgensen, 2008, and Jorgensen and Jensen, 2009). Bloom et al. (2005) show, however, that this life-cycle savings model is incomplete, and that an increase in life expectancy can actually have a negative effect on the savings rate. They argue that if the retirement age is endogenously determined, then a rise in life expectancy may lead to a more or less than proportional rise in the retirement age so the effect on the savings rate is ambiguous. This result is driven by a wealth effect of the longer working life. Jorgensen and Jensen (2009) finds a similar result in a model with endogenous labor supply, where the wealth effect due to distortionary taxation more than outweighs the sum of substitution and income effects when life expectancy increases.

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