Endogenous fertility and modified Pareto-optimality

In a world of endogenous fertility, where the number of descendants is an integral part of the economic allocation, the traditional concept of Pareto-optimality cannot be applied any longer: the number of individuals to be present on earth may vary between any two allocations we wish to compare. Therefore, the concept needs to be modified in order to give new life to the discussion of economic efficiency. This work introduces a straightforward variation of the Pareto-principle and characterizes the optimality of economic allocations according to this concept. It is shown that some of the well-known traditional results on intertemporal optimality do no longer hold. In particular, lump-sum tax instruments (or the rearrangement of initial endowments) are no longer a sufficient tool to achieve efficiency. Copyright Springer-Verlag Berlin/Heidelberg 2005