How Do Risk Attitudes Affect Couple Decision? Investigating the Transition to Parenthood in East and West Germany Using Data of the German Socioeconomic Panel (SOEP)

Christian Schmitt, German Institute for Economic Research (DIW Berlin), University of Rostock and University of Bamberg

Focusing on decision-making in couples I investigate the impact of risk attitudes on the transition to parenthood as the consequential and irreversible step into parenthood is likely to be preceded by a thorough and deliberate decision-making process. In detail, I investigate to which extent risk aversion or risk affinity translates into differences in fertility choices, and whether the associated decisions are affected by economic and social conditions, which are capable of mediating risk attitudes. I aim at answering two major research questions: 1) Does risk aversion foster or hamper the likelihood to opt for the transition to parenthood? 2) Are fertility choices affected by interactions between individual risk attitudes and changes in economic and social conditions in East and West Germany? In order to address these questions I distinguish risk attitudes and fertility choices in East and West Germany. Institutional support, enacted across the whole of Germany, might be capable to compensate for occupational adversities like unemployment, e.g., thus containing individual economic risks. However, the Welfare State’s provision of services and support might also raise the internalized level of minimum security, required to make binding long-term commitments like becoming a parent. In this context, I assume that socialization under different institutional and social contexts of the FRG and the GDR affected the evolution of different base levels of risk attitudes, where the high predictability and low variability of the GDR’s institutional system fostered a higher level of risk aversion. In front of this backdrop, the key research question rests on whether differences in risk attitudes translate into differences in fertility behavior. Relying on micro-data from the Socio Economic Panel Study (SOEP), the empirical investigation of this issue is based on discrete time piecewise constant estimates of first-birth decisions. The findings suggest systematic differences in risk attitudes between individuals who grew up in East and West Germany prior to the fall of the Wall. Moreover childbearing decisions appear to be linked to risk-attitudes with a mediating impact of occupational insecurities, which vastly overshadow the role of risk aversion in opting to start a family.