Educational Signaling, Credit Constraints and Inequality Dynamics
AbstractWe present a dynamic OLG model of educational signaling and inequality with missing credit markets. Agents are characterized by two sources of unobserved heterogeneity: ability and parental income, consistent with empirical evidence on returns to schooling. Both quantity and quality of human capital evolve endogenously. The model generates a Kuznets inverted-U pattern in skill premia similar to historical US and UK experience. In the first (resp. later) phase the skill premium rises (falls), social returns to education exceed (falls below) private returns: under-investment owing to financial imperfections dominate (are dominated by) over-investment owing to signaling distortions. There always exist Pareto-improving policy interventions reallocating education between poor and rich children.
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Bibliographic InfoPaper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2010-035.
Length: 47 pages
Date of creation: Jan 2010
Date of revision:
Other versions of this item:
- Marcello D'Amato & Dilip Mookherjee, 2012. "Educational Signaling, Credit Constraints and Inequality Dynamics," CSEF Working Papers 311, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
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