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A Simple Economic Theory of Skill Accumulation and Schooling Decisions

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Author Info

  • William Blankenau

    (Kansas State University)

  • Gabriele Camera

    (Purdue University)

Abstract

We propose a model of schooling that can account for the observed heterogeneity in workers' productivity and educational attainment. Identical unskilled agents can get a degree at a cost, but becoming skilled entails an additional unobservable effort cost. Individual labor can then be used as an input in pairwise production matches. Two factors affect students' desire to build human capital: degrees imperfectly signal productivity, and contract imperfections generate holdup problems. Multiple stationary equilibria exist, some of which are market failures characterized by a largely educated workforce of low average skill. Policy implications are explored. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2005.05.002
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 9 (2006)
Issue (Month): 1 (January)
Pages: 93-115

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Handle: RePEc:red:issued:v:9:y:2006:i:1:p:93-115

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Related research

Keywords: Education Policy; Education Finance; Human Capital; Informational Frictions; Matching; Multiple Equilibria.;

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References

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  1. Andrea Moro & Peter Norman, . "Affirmative Action in a Competitive Economy," Penn CARESS Working Papers ca48ba70927f48a4e11034658, Penn Economics Department.
  2. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  3. Joseph E. Stiglitz, 1973. "The Theory of 'Screening', Education, and the Distribution of Income," Cowles Foundation Discussion Papers 354, Cowles Foundation for Research in Economics, Yale University.
  4. Betts, Julian R, 1998. "The Impact of Educational Standards on the Level and Distribution of Earnings," American Economic Review, American Economic Association, vol. 88(1), pages 266-75, March.
  5. William Blankenau & Gabriele Camera, 2009. "Public Spending on Education and the Incentives for Student Achievement," Economica, London School of Economics and Political Science, vol. 76(303), pages 505-527, 07.
  6. Lazear, Edward, 1977. "Academic Achievement and Job Performance: Note," American Economic Review, American Economic Association, vol. 67(2), pages 252-54, March.
  7. Andrew Weiss, 1995. "Human Capital vs. Signalling Explanations of Wages," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 133-154, Fall.
  8. William Blankenau, 1999. "A Welfare Analysis of Policy Responses to the Skilled Wage Premium," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 820-849, October.
  9. Adrian Masters, 2004. "Firm level hiring policy with culturally biased testing," Discussion Papers 04-14, University at Albany, SUNY, Department of Economics.
  10. Snower, Dennis J., 1994. "The Low-Skill, Bad-Job Trap," CEPR Discussion Papers 999, C.E.P.R. Discussion Papers.
  11. Gabriele Camera & Robert R. Reed & Christopher J. Waller, 2003. "Jack of All Trades or a Master of One? Specialization, Trade, and Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1275-1294, November.
  12. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, vol. 2(3), pages 193-216, July.
  13. Weiss, Andrew, 1983. "A Sorting-cum-Learning Model of Education," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 420-42, June.
  14. Bishop, John, 1987. "The Recognition and Reward of Employee Performance," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages S36-56, October.
  15. Charalambos Aliprantis & Gabriele Camera & Daniela Puzzello, 2006. "Matching and anonymity," Economic Theory, Springer, vol. 29(2), pages 415-432, October.
  16. Costrell, Robert M, 1994. "A Simple Model of Educational Standards," American Economic Review, American Economic Association, vol. 84(4), pages 956-71, September.
  17. Hanushek, Eric A, 1986. "The Economics of Schooling: Production and Efficiency in Public Schools," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1141-77, September.
  18. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
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Citations

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Cited by:
  1. Mendolicchio, Concetta & Paolini, Dimitri & Pietra, Tito, 2011. "Income taxes, subsidies to education, and investments in human capital," IAB Discussion Paper 201107, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  2. Bidner, Chris, 2010. "Pre-match investment with frictions," Games and Economic Behavior, Elsevier, vol. 68(1), pages 23-34, January.
  3. Jean-Marie Viaene & Itzhak Zilcha, 2011. "Public Funding of Higher Education," CESifo Working Paper Series 3606, CESifo Group Munich.

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