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Wealth Distribution, Investment in Human Capital and Occupational Choice When Capital Markets Are Imperfect

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  • Riccarda Longaretti

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    (Department of Economics, University of Milan-Bicocca)

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    Abstract

    In order to study the long-run effects of agents’heterogeneity we consider overlapping generations of individuals who differ from one another in wealth and inefficiency level. When young, agents choose whether to invest or not in human capital. Since the net return of human capital investment is positive, agents who can afford such an investment, do invest. In thesecond period of life, agents make an occupational choice. They choose to be workers or entrepreneurs. There exists a critical level of in efficiency be low which becoming entrepreneur is profitable. The wealth distribution and the occupational structure of agents changes overtime, the former being the cause and the effect of thelatter. Thelong run wealth distribution is stationary and can be either ergodic ornot, with long-run occupational mobility or not. We show how the economy’s structural parameters and the types of intergenerational transmission of skills affect the dynamic patterns and thelong-run equilibria.

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    File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper38.pdf
    File Function: First version, 2001
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    Bibliographic Info

    Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 38.

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    Length: 35 pages
    Date of creation: Nov 2001
    Date of revision: Nov 2001
    Handle: RePEc:mib:wpaper:38

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-91, September.
    2. Perotti, Roberto, 1994. "Income distribution and investment," European Economic Review, Elsevier, vol. 38(3-4), pages 827-835, April.
    3. Ann L. Owen & David N. Weil, 1997. "Intergenerational Earnings Mobility, Inequality, and Growth," NBER Working Papers 6070, National Bureau of Economic Research, Inc.
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    5. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
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    8. Easterly, William & Rebelo, Sérgio, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," CEPR Discussion Papers 885, C.E.P.R. Discussion Papers.
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    10. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
    11. Checchi, Daniele & Ichino, Andrea & Rustichini, Aldo, 1999. "More equal but less mobile?: Education financing and intergenerational mobility in Italy and in the US," Journal of Public Economics, Elsevier, vol. 74(3), pages 351-393, December.
    12. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
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    14. repec:rie:review:y:1998:v:1:i:5 is not listed on IDEAS
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    16. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
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    18. repec:rie:review:v:3:y:1998:i:1:n:5 is not listed on IDEAS
    19. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
    20. Piketty, Thomas, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 173-89, April.
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