Competition, Human Capital and Income Inequality with Limited Commitment
AbstractWe develop a dynamic general equilibrium model with two-sided limited commitment to study how barriers to competition, such as restrictions to business start-up, affect the incentive to accumulate human capital. We show that a lack of contract enforceability amplifies the effect of barriers to competition on human capital accumulation. High barriers reduce the incentive to accumulate human capital by lowering the outside value of ‘skilled workers’, while low barriers can result in over-accumulation of human capital. This over-accumulation can be socially optimal if there are positive knowledge spillovers. A calibration exercise shows that this mechanism can account for significant cross-country income inequality.
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Bibliographic InfoPaper provided by European University Institute in its series Economics Working Papers with number ECO2008/21.
Date of creation: 2008
Date of revision:
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Limited commitment; limited enforcement; human capital accumulation; income inequality; innovation; barriers to competition.;
Find related papers by JEL classification:
- D99 - Microeconomics - - Intertemporal Choice and Growth - - - Other
- E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property Rights
- O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-06-13 (All new papers)
- NEP-BEC-2008-06-13 (Business Economics)
- NEP-COM-2008-06-13 (Industrial Competition)
- NEP-CTA-2008-06-13 (Contract Theory & Applications)
- NEP-DEV-2008-06-13 (Development)
- NEP-DGE-2008-06-13 (Dynamic General Equilibrium)
- NEP-EDU-2008-06-13 (Education)
- NEP-KNM-2008-06-13 (Knowledge Management & Knowledge Economy)
- NEP-MAC-2008-06-13 (Macroeconomics)
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