Healthy Grands, Fertility and Pensions

Abstract In this paper, we build a simple overlapping generations model with endogenous fertility and a PAYG pension system. Children are costly, but healthy grandparents can reduce this cost by providing grandparental care. However, if grandparents are unhealthy, their adult children have to spend time caring for them. The results show how longevity and grandparenting affect equilibrium fertility and pensions, depending on the elderly’s health, thus adding two important dimensions – grandparenting and elderly health – to the stylized textbook OLG model with longevity and endogenous fertility.