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Educational Policy in a Credit Constrained Economy with Skill Heterogeneity

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  • John Fender
  • Ping Wang

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.

Suggested Citation

  • John Fender & Ping Wang, 2003. "Educational Policy in a Credit Constrained Economy with Skill Heterogeneity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 939-964, August.
  • Handle: RePEc:ier:iecrev:v:44:y:2003:i:3:p:939-964
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    References listed on IDEAS

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    More about this item

    JEL classification:

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

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