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Endogenous family-planning rules and the optimal cash penalties

Authors Lee, Daniel
Issue Date 2002-09-05
Summary Economic reform has brought tremendous changes to China’s rural economy in the past two decades, as reflected in a combination of rapid economic growth, rural industrialization, structural change, and sharp reductions in fertility. These changes have also affected labor supply patterns and the contribution of women to the economic welfare of the household. This paper examines the determinants of family-planning rules. I argue that the cash penalty serves the dual role of enforcing family-planning rules and generating revenue for both local family-planning work and cadre bonuses. Using a maximization model, I show that local cadres set the cash penalty in such a way as to balance the utility obtained from strictly enforcing the rules with the revenue gained from lax enforcement and the imposition of cash penalties. In this manner, the level of the cash penalty depends on local conditions that affect the enforceability of rules and the difficulties in collecting cash penalties. I use a panel village-level data set also collected by the China Health and Nutrition Survey in 1989, 1991 and 1993 for the empirical analysis. I use a random effect Probit model to estimate the determinants of fa mily rules, which are modeled as dichotomous variables. Since the cash penalty is never negative, I use the Tobit random effect model to deal with censoring. There are two notable findings. First, family-planning rules are strongly correlated with geographical locations. Second, the level of cash penalties is positively correlated with local incomes.
Language English
Format Working paper
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