Cordoba, Juan Carlos; Liu, Xiying

WP #13009, April 2013

Stochastic dominance (SD) is commonly used to rank income distribution and assesssocial policies. The literature argues that SD is a robust criterion for policy evaluationbecause it requires minimal knowledge of the social welfare function. We argue that,on the contrary, SD is not a robust criterion. We do this by carefully introducing mi-crofoundations into a model by Chu and Koo (1990) who use SD to provide support tofamily-planning programs aiming at reducing the fertility of the poor. We show thatfertility restrictions are generally detrimental for both individual and social welfare inspite of the fact that SD holds. Our …findings are an application of the Lucas’Critique.

JEL Classification: I, I1, I3, J, J1, O, O5

Keywords: Fertility, Welfare, income distribution, children, demographic policies, one child policy, stochastic dominance.

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