The asymmetric housing wealth effect on childbirth

Shinichiro Iwata and Michio Naoi

MPRA Paper from University Library of Munich, Germany

Abstract: The literature has shown that an increase in housing wealth, driven by unexpected shocks to house prices, exerts a positive effect on the birthrates of homeowners. According to canonical models, a decrease in housing wealth has a symmetric negative impact on the fertility behavior of households. That is, housing gains and losses of the same size should have identical quantitative effects on fertility. In comparison, prospect theory suggests that people care more about housing losses than equivalent gains, leading to an asymmetric effect of housing wealth on the fertility decision. In our model, we weight the utility from childbirth by the utility from the price of housing, where the reference level is the house price in previous years. The theoretical model suggests that the probability of childbirth is kinked at a reference level of housing wealth and the wealth effects are discontinuously larger below this kink than above it. We test this theoretical prediction using longitudinal data on Japanese households. Consistent with this theoretical prediction, our empirical results show that the fertility responses of homeowners, as measured by the birth hazard rate, are substantially larger when housing wealth is below its reference level than when it is above its reference level.

Keywords: childbirth; housing price; wealth; homeownership; reference-dependent preferences; loss aversion (search for similar items in EconPapers)
JEL-codes: J13 R21 (search for similar items in EconPapers)
Date: 2015-07-01
New Economics Papers: this item is included in nep-upt and nep-ure
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Related works:
Journal Article: The asymmetric housing wealth effect on childbirth (2017)
Working Paper: The Asymmetric Housing Wealth Effect on Childbirth (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:65360

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