Educational Signaling, Credit Constraints and Inequality Dynamics
AbstractWe present a dynamic OLG model of educational signaling, inequality and mobility 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. JEL Classification:
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Bibliographic InfoPaper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 311.
Date of creation: 11 Apr 2012
Date of revision:
Other versions of this item:
- Dilip Mookherjee & Marcello D'Amato, 2010. "Educational Signaling, Credit Constraints and Inequality Dynamics," Boston University - Department of Economics - Working Papers Series WP2010-035, Boston University - Department of Economics.
- NEP-ALL-2012-04-23 (All new papers)
- NEP-DGE-2012-04-23 (Dynamic General Equilibrium)
- NEP-EDU-2012-04-23 (Education)
- NEP-LAB-2012-04-23 (Labour Economics)
- NEP-LTV-2012-04-23 (Unemployment, Inequality & Poverty)
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