Childhood as an externality
09/12/2011 § 4 Comments
Bear with me for a moment.
Economic analysis is focused on agents/individuals who produce and consume goods and services. They can also make rational decisions based on some amount of information, expectations, etc.
Children don’t really fit. Yes, they consume stuff, but they are constrained by their parents’ preferences and don’t really face market prices. While there are reasons for their decisions, I don’t think they classify as ‘rational’. Their preferences certainly aren’t stable. They also can’t enter into contracts so are excluded from a lot of economic transactions.
So, childhood isn’t really part of an analysis of the economy. People become economic agents when they become adults or adult-ish. They sort of spring into the economy fully formed.
We could formalise this by treating childhood as an externality. Childhood is to some extent done to the child; we don’t choose our parents or their circumstances. Childhood is also somewhat a by-product or co-product of the economy. Whether a pre-schooler is in daycare, for example, is partly a result of the parents’ employment decisions.
The benefit of this approach is that it gives us a ready-made framework for thinking about the impacts of childhood. We can think about negative and positive externalities — childhood conditions that either tend to hold adults back or increase their opportunities.
And then, of course, we can think about what we can do about them. The market is the first-best solution assuming there are no externalities. Once we add in the externality that is childhood, what happens to that market solution? The presence of the externality isn’t sufficient reason to decide that the market solution is bad, but it means that we should examine it critically.
If we do decide to intervene, we could consider the mechanism to use. For example, agent-adults who are affected by negative externalities could claim compensation after the fact. They could assert that their adult lives have been polluted by childhood poverty, which was inflicted on them. I’m not sure who would pay the compensation. Parents are not solely responsible for a child’s situation; schools, the medical system, communities, etc. might all need to contribute. At any rate, if the parents also suffered negative externalities, then there is a chain of claims.
Alternatively, we could set up institutions to distribute the positive and negative externalities of childhoods amongst the agent-adults. Essentially, some portion of income taxes and welfare payments already represents this sort of transfer. We could more explicitly recognise the role of externalities in contributing to agent-adult outcomes, and thereby tag part of these transfers as a response to the externality problem. Another institutional approach would be to reduce negative externalities, subject to some assessment of the marginal cost. This approach could be an argument for quality public institutions from a strictly individualistic perspective.
Just some thoughts for a Friday. Thanks for reading.