Parents are people too

One of the Ten Principles of Economics is that "People Respond to Incentives." On this father's day, here is a story to remind us that this principle applies to would-be parents.

As Joshua Gans tells it, in May 2004, the Australian government announced that it would give a $3000 maternity allowance for babies born on or after July 1, 2004. So what happened?

No surprise: a decline in births just before the cutoff and a surge in births just afterward. Economists call this intertemporal substitution. Gans reports:

Indeed, the 1st July, 2004, had the most number of births in a single day over the entire 30 years of data we had (almost 11,000 days). The 2nd July was no slouch either, being the 7th highest day. This was a big effect.

The lesson: Always remember the Ten Principles.

FYI, Gans is one of my coauthors for the Pacific Rim adaptation of my introductory text.