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Signal-extracting education in an overlapping generations model

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  • Koichi Futagami

    ()

  • Shingo Ishiguro

    ()

Abstract

In order to get good positions in companies, people try to enter highly-ranked universities. However, abilities vary greatly between individuals. High-ability individuals have an incentive to send signals to firms by obtaining a higher level of education in order to distinguish themselves from low-ability individuals. This paper constructs an overlapping generations model in order to examine the macroeconomic consequences of such sorting behavior of individuals. There are two kinds of possible equilibria in our model. In one equilibrium, only the high-ability agent can obtain higher education and thus an elite society emerges. In the other equilibrium, all ability types have the chance to obtain higher education and thus a society with mass higher education emerges. We also discuss the possibility of multiple equilibria of these different steady states and the dynamic change in wage differentials. Copyright Springer-Verlag Berlin/Heidelberg 2004

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File URL: http://hdl.handle.net/10.1007/s00199-003-0419-7
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 24 (2004)
Issue (Month): 1 (07)
Pages: 129-146

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Handle: RePEc:spr:joecth:v:24:y:2004:i:1:p:129-146

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Web page: http://link.springer.de/link/service/journals/00199/index.htm

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Related research

Keywords: Signal; Education; Overlapping generations.;

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Cited by:
  1. Bergh, Andreas & Fink, Günther, 2005. "Escaping Mass Education – Why Harvard Pays," Working Papers 2005:2, Lund University, Department of Economics.
  2. Ashok S. Guha & Brishti Guha, 2008. "Target Saving In An Overlapping Generations Model," Working Papers 01-2008, Singapore Management University, School of Economics.
  3. Masashi Tanaka, 2013. "Human capital investment, Signaling, and Wage differentials," Discussion Papers in Economics and Business 13-31, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

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