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Improvement in information and private investment in education

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  • Eckwert, Bernhard
  • Zilcha, Itzhak

Abstract

This paper uses the framework of an OLG economy for an analysis of the dynamic interaction between the precision of information about individual skills, investment in education, human capital accumulation, and social welfare. The human capital of an individual depends on both his (subjectively) random ability and his investment in education. Individual investment in education is financed through a loan contract with income-contingent terms of repayment. Investment decisions are based on public signals (test outcomes) which screen all agents for their abilities. We find that better information, which allows more efficient screening, enhances aggregate human capital formation but may, at the same time, stifle aggregate investment in education. Moreover, social welfare may increase or decline depending on the transformation technology and on the relative measure of risk aversion.

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  • Eckwert, Bernhard & Zilcha, Itzhak, 2010. "Improvement in information and private investment in education," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 585-597, April.
    • Handle: RePEc:eee:dyncon:v:34:y:2010:i:4:p:585-597
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    Cited by:

    1. Bernhard Eckwert & Itzhak Zilcha, 2011. "Competition in Funding Higher Education," CESifo Working Paper Series 3588, CESifo.
    2. Blankenau, William F. & Gao, Yuan, 2014. "Admission standards, student effort, and the creation of skilled jobs," Economic Modelling, Elsevier, vol. 43(C), pages 209-216.
    3. Hatsor, Limor, 2015. "Higher education funding: The value of information," Economics Letters, Elsevier, vol. 137(C), pages 230-233.
    4. Bernhard Eckwert & Itzhak Zilcha, 2017. "Student loans: When is risk sharing desirable?," International Journal of Economic Theory, The International Society for Economic Theory, vol. 13(2), pages 217-231, June.

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