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Abstract

An overlapping-generations model where agents choose whether to become educated when young is presented. Education enhances productivity, but needs to be financed by borrowing. Because of the possibility of default, lenders may ration credit. We characterize the steady-state equilibrium with and without credit constraints and show that credit constraints are associated with lower education and a lower real interest rate. We then study the role of public policy in remedying the inefficiency which occurs with credit market imperfections and examine whether public education can improve on the constrained equilibrium. Copyright 2003 By The Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 44 (2003)
Issue (Month): 3 (08)
Pages: 939-964

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Handle: RePEc:ier:iecrev:v:44:y:2003:i:3:p:939-964

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Find related papers by JEL classification:

• E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
• H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education

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Citations

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Cited by:

1. Mohamed Ben Mimoun, 2004. "Redistribution Through Education and Other Mechanisms Under. Capital-Market Imperfections and Uncertainty : A Welfare Effect Analysis," Cahiers de la Maison des Sciences Economiques bla04110, Université Panthéon-Sorbonne (Paris 1).
2. Sorokina, Olga V., 2008. "Credit Constraints in the Demand for Education: Evidence from Survey Data," MPRA Paper 11932, University Library of Munich, Germany.
3. Hassler, John & Rodríguez Mora, José Vicente & Zeira, Joseph, 2000. "Inequality and Mobility," CEPR Discussion Papers 2497, C.E.P.R. Discussion Papers.
   
   • John Hassler & José Rodríguez Mora & Joseph Zeira, 2007. "Inequality and mobility," Journal of Economic Growth, Springer, vol. 12(3), pages 235-259, September.
   • Hassler, John & Rodriguez Mora, Jose V. & Zeira, Joseph, 2002. "Inequality and Mobility," Working Paper Series rwp02-009, Harvard University, John F. Kennedy School of Government.
   • John Hassler & José Vicente Rodríguez Mora & Joseph Zeira, 2003. "Inequality and Mobility," Working Papers 23, Barcelona Graduate School of Economics.
   • John Hassler & Jose V. Rodriguez Mora & Joseph Zeira, 2007. "Inequality and Mobility," ESE Discussion Papers 165, Edinburgh School of Economics, University of Edinburgh.
4. Ho, Wai-Hong, 2008. "Credit Market Development and Human Capital Accumulation," MPRA Paper 16760, University Library of Munich, Germany.
5. Basab Dasgupta, 2005. "Liquidity Constraint and Child Labor In India: Is Market Really Incapable Of Eradicating It From Wage-Labor Households?," Working papers 2005-37, University of Connecticut, Department of Economics.
6. Kazumasa Oguro & Takashi Oshio & Junichiro Takahata, 2013. "Ability transmission, endogenous fertility and educational subsidy," Applied Economics, Taylor and Francis Journals, vol. 45(17), pages 2469-2479, June.
   
   • Oguro, Kazumasa & Oshio, Takashi & Takahata, Junichiro, 2010. "Ability transmission, endogenous fertility, and educational subsidy," PIE/CIS Discussion Paper 482, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
7. Kazuo Mino & Koji Shimomura & Ping Wang, 2005. "Occupational Choice and Dynamic Indeterminacy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 138-153, January.
   
   • Mino, Kazuo & Koji, Shimomura & Wang, Ping, 2003. "Occupational Choice and Dynamic Indeterminacy," MPRA Paper 17063, University Library of Munich, Germany.
8. Neville N. Jiang & Ping Wang & Haibin Wu, 2002. "Finance Thy Growth: The Role of Occupational Choice By Ability-Heterogeneous Agents," Vanderbilt University Department of Economics Working Papers 0228, Vanderbilt University Department of Economics, revised Oct 2003.
9. Been-Lon Chen & Yeong-Yuh Chiang & Ping Wang, 2008. "Credit Market Imperfections and Long-Run Macroeconomic Consequences," Annals of Economics and Finance, Society for AEF, vol. 9(1), pages 151-175, May.
10. Jiang, Neville & Wang, Ping & Wu, Haibin, 2010. "Ability-heterogeneity, entrepreneurship, and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 522-541, March.

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