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Sorry, I don’t get why having a baby creates an externality. Yes, having one more child adds to the future labor supply and increases future output. But in a competitive market, my kid will get all of the additional output. The income of non-human capital owners doesn't increase, there's no externality. Even if there’s imperfect competition in the labor market, my kid will still get most of the additional output while the rest is spread over millions of non-human capital owners, so the externality will be tiny. And if you think increasing the future labor supply (=having a baby) creates an external benefit to society, do you think increasing present labor supply (=work more hours) does the same? If not, where’s the difference? If yes, do you think labor supply is inefficiently low in unregulated markets in general?
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Feb 27, 2015