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Peer Effects and the Promise of Social Mobility: A Model of Human Capital Investment

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  • Chris Bidner

    ()
    (School of Economics, University of New South Wales)

Abstract

I analyze a model of human capital development in the presence of peer effects. Parents invest in their child, and this investment conveys a positive externality upon the child’s peers. Parents also acquire wealth, which i) finances consumption, and ii) determines a child’s peer group. I show how the freedom to compete for desirable peers exacerbates the natural underinvestment problem. The analysis thereby produces a general equilibrium framework in which the inefficiencies displayed in a rat-race interact with those stressed in the multi-tasking literature. I consider an extension in which both wealth and parental investment are observed with noise.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2010-09.pdf
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Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2010-09.

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Length: 41 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:swe:wpaper:2010-09

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Keywords: Peer Effects; Premarital Investment; Matching; Human Capital;

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  1. de Bartolome, Charles A M, 1990. "Equilibrium and Inefficiency in a Community Model with Peer Group Effects," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 110-33, February.
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