Afdc Payments and Illegitimacy Ratios : A Reappraisal of Endogeneity Using Panel Data

This paper develops a rational choice model of the fertility of single women in the presence of government transfers. Evidence is presented which suggests that real AFDC (Aid to Families with Dependent Children) benefits leads to higher rates of illegitimacy. In fact, the unbiased parameter estimate which we present is six times larger than those estimates using OLS (Caudill and Mixon 1993). Also, the point elasticity estimate of real public benefit levels with respect to changes in the illegitimacy rate produced in this study is very robust, approximately +1.4. Our result, which encompasses all fertility of single women in the U.S., is quite encouraging because it falls within an elasticity range of +1.3 to +2.1 produced by a recent study (Clarke and Strauss 1998) for black and white teen fertility (for single women), respectively