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Educational Policy and Skill Heterogeneity with Credit Market Imperfections

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Author Info
John Fender (University of Birmingham, UK)
Ping Wang () (Department of Economics, Vanderbilt University)

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Abstract

An overlapping-generations model where agents choose whether to become educated when young is presented. Education enhances productivity, but needs to be financed by borrowing. Because of the possibility of default, lenders may ration credit. We characterize the steady-state equilibrium with and without credit constraints and show that credit rationing tends to be associated with lower education and a lower real interest rate. We then examine the role of public policy in remedying the inefficiency which occurs in the presence of credit rationing and derive results on optimal public education spending and on allocative and distributional issues.

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File URL: http://www.vanderbilt.edu/econ/wparchive/workpaper/vu00-w21.pdf
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File Function: First version, 2000
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Publisher Info
Paper provided by Department of Economics, Vanderbilt University in its series Working Papers with number 0021.

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Date of creation: Jun 2000
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Handle: RePEc:van:wpaper:0021

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Related research
Keywords: Education; credit rationing; public policy;

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education

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    Other versions:
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  15. Gertler, Mark & Gilchrist, Simon, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 309-40, May. [Downloadable!] (restricted)
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