Advanced Search
MyIDEAS: Login to save this paper or follow this series

Intergenerational interactions in human capital accumulation

Contents:

Author Info

  • Woźny, Łukasz
  • Growiec, Jakub

Abstract

We analyze an economy populated by a sequence of generations who decide over their consumption levels and the levels of investment in human capital of their immediate descendants. The objective of the paper is to identify the impact of strategic interactions between consecutive generations on the time path of human capital accumulation. To this end, we characterize the Markov perfect equilibrium (MPE) in such an economy and derive the sufficient conditions for its existence and uniqueness. The equilibrium path is computed using a novel constructive approach: extending Reffett and Woźny (2008), we put forward an iterative procedure which converges to the MPE as its limit. To benchmark our results, we also calculate the optimal human capital accumulation paths for (i) a Ramsey-type model with dynastic optimization, and (ii) a model with joy-of-giving altruism. We prove analytically that human capital accumulation is unambiguously lower in the "strategic" model than in the Ramsey-type dynastic model. We complement our results with a series of numerical exercises.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/10308/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10308.

as in new window
Length:
Date of creation: 20 Jul 2008
Date of revision:
Handle: RePEc:pra:mprapa:10308

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: human capital; intergenerational interactions; Markov perfect equilibrium; stochastic transition; constructive approach;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. AMIR , Rabah, 1995. "Continuous Stochastic Games of Capital Accumulation with Convex Transition," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1995009, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. John Laitner, 2002. "Wealth Inequality and Altruistic Bequests," American Economic Review, American Economic Association, vol. 92(2), pages 270-273, May.
  3. Amir, Rabah, 1996. "Strategic Intergenerational Bequests with Stochastic Convex Production," Economic Theory, Springer, vol. 8(2), pages 367-76, August.
  4. Amir, R., 1991. "Sensitivity analysis of multi-sector optimal economic dynamics," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1991006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 843-67, June.
  6. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 257-298 National Bureau of Economic Research, Inc.
  7. Paul Klein & Per Krusell & José-V�ctor R�os-Rull, 2008. "Time-Consistent Public Policy," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 789-808.
  8. Bernheim, B. Douglas & Ray, Debraj, 1989. "Markov perfect equilibria in altruistic growth economies with production uncertainty," Journal of Economic Theory, Elsevier, vol. 47(1), pages 195-202, February.
  9. Leininger, Wolfgang, 1986. "The Existence of Perfect Equilibria in a Model of Growth with Altruism between Generations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(3), pages 349-67, July.
  10. Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1985. "The Strategic Bequest Motive," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(6), pages 1045-76, December.
  11. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 75, pages 352.
  12. Adrian Bruhin & Rainer Winkelmann, 2009. "Happiness functions with preference interdependence and heterogeneity: the case of altruism within the family," Journal of Population Economics, Springer, vol. 22(4), pages 1063-1080, October.
  13. Wilbur John Coleman II, 1989. "Equilibrium in a production economy with an income tax," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 366, Board of Governors of the Federal Reserve System (U.S.).
  14. Paul Klein & JosÈ-VÌctor RÌos-Rull, 2003. "Time-consistent optimal fiscal policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1217-1245, November.
  15. Leonard J Mirman & Olivier F. Morand & Kevin L. Reffett, 2004. "A Qualitative Approach to Markovian Equilibrium in Infinite Horizon Economies with Capital," Levine's Bibliography 122247000000000224, UCLA Department of Economics.
  16. Andrew B. Abel & Mark Warshawsky, . "Specification of the Joy of Giving: Insights from Altruism," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 03-87, Wharton School Rodney L. White Center for Financial Research.
  17. Manjira Datta & Kevin L. Reffett, 2005. "Isotone Recursive Methods: the Case of Homogeneous Agents," Tinbergen Institute Discussion Papers 05-012/2, Tinbergen Institute.
  18. Orazem, Peter & Tesfatsion, Leigh, 1997. " Macrodynamic Implications of Income-Transfer Policies for Human Capital Investment and School Effort," Journal of Economic Growth, Springer, vol. 2(3), pages 305-29, September.
  19. Balbus, Łukasz & Reffett, Kevin & Woźny, Łukasz, 2013. "A constructive geometrical approach to the uniqueness of Markov stationary equilibrium in stochastic games of intergenerational altruism," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(5), pages 1019-1039.
  20. Lionel Artige & Carmen Camacho & David De La Croix, 2004. "Wealth Breeds Decline: Reversals of Leadership and Consumption Habits," Journal of Economic Growth, Springer, vol. 9(4), pages 423-449, December.
  21. Coleman, Wilbur II, 2000. "Uniqueness of an Equilibrium in Infinite-Horizon Economies Subject to Taxes and Externalities," Journal of Economic Theory, Elsevier, vol. 95(1), pages 71-78, November.
  22. Bernheim, B Douglas & Ray, Debraj, 1987. "Economic Growth with Intergenerational Altruism," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 54(2), pages 227-41, April.
  23. Galor, Oded & Tsiddon, Daniel, 1997. " The Distribution of Human Capital and Economic Growth," Journal of Economic Growth, Springer, vol. 2(1), pages 93-124, March.
  24. Andrzej Nowak, 2006. "On perfect equilibria in stochastic models of growth with intergenerational altruism," Economic Theory, Springer, vol. 28(1), pages 73-83, 05.
  25. Klein Paul & Quadrini Vincenzo & Rios-Rull Jose-Victor, 2005. "Optimal Time-Consistent Taxation with International Mobility Of Capital," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 5(1), pages 1-36, June.
  26. Andrzej Nowak, 2003. "On a new class of nonzero-sum discounted stochastic games having stationary Nash equilibrium points," International Journal of Game Theory, Springer, vol. 32(1), pages 121-132, December.
  27. Per Krusell & Anthony A. Smith, Jr., . "Consumption-Savings Decisions with Quasi-Geometric Discounting," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 2001-05, Carnegie Mellon University, Tepper School of Business.
  28. Chari, V V & Hopenhayn, Hugo, 1991. "Vintage Human Capital, Growth, and the Diffusion of New Technology," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(6), pages 1142-65, December.
  29. Luc Arrondel & André Masson, 2002. "Altruism, Exchange or Indirect Reciprocity: What do the Data on Family Transfers Show?," DELTA Working Papers 2002-18, DELTA (Ecole normale supérieure).
  30. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  31. Santos, Manuel S., 1994. "Smooth dynamics and computation in models of economic growth," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 18(3-4), pages 879-895.
  32. Edlin, Aaron S. & Shannon, Chris, 1998. "Strict Monotonicity in Comparative Statics," Journal of Economic Theory, Elsevier, vol. 81(1), pages 201-219, July.
  33. Kydland, Finn E. & Prescott, Edward C., 1980. "Dynamic optimal taxation, rational expectations and optimal control," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 2(1), pages 79-91, May.
  34. Michael Magill & Martine Quinzii, 2009. "The probability approach to general equilibrium with production," Economic Theory, Springer, vol. 39(1), pages 1-41, April.
  35. Rangazas, Peter, 2000. "Schooling and economic growth: A King-Rebelo experiment with human capital," Journal of Monetary Economics, Elsevier, Elsevier, vol. 46(2), pages 397-416, October.
  36. Laitner, John, 1979. "Household Bequests, Perfect Expectations, and the National Distribution of Wealth," Econometrica, Econometric Society, Econometric Society, vol. 47(5), pages 1175-93, September.
  37. Montrucchio, Luigi, 1998. "Thompson metric, contraction property and differentiability of policy functions," Journal of Economic Behavior & Organization, Elsevier, vol. 33(3-4), pages 449-466, January.
  38. Lane, John & Mitra, Tapan, 1981. "On Nash Equilibrium Programs of Capital Accumulation under Altruistic Preferences," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(2), pages 309-31, June.
  39. Dasgupta, Partha, 1974. "On some alternative criteria for justice between generations," Journal of Public Economics, Elsevier, vol. 3(4), pages 405-423, November.
  40. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 66, pages 281.
  41. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 473-91, June.
  42. Peleg, Bezalel & Yaari, Menahem E, 1973. "On the Existence of a Consistent Course of Action when Tastes are Changing," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 40(3), pages 391-401, July.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:10308. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.