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Educational Policy in a Credit Constrained Economy with Skill Heterogeneity

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  • John Fender

    (Unversity of Birmingham, UK)

  • Ping Wang

    ()
    (Department of Economics, Vanderbilt University)

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 constraints are associated with lower education and a lower real interest rate. We then study the role of public policy in remedying the inefficiency which occurs with credit market imperfections and examine whether public education can improve on the constrained equilibrium.

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File URL: http://www.accessecon.com/pubs/VUECON/vu01-w33.pdf
File Function: First version, 2001
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0133.

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Date of creation: Dec 2001
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Handle: RePEc:van:wpaper:0133

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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Keywords: Education; credit constraints; public policy;

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  13. Jacoby, Hanan G & Skoufias, Emmanuel, 1997. "Risk, Financial Markets, and Human Capital in a Developing Country," Review of Economic Studies, Wiley Blackwell, vol. 64(3), pages 311-35, July.
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  18. Lloyd-Ellis, Huw, 2000. "Public Education, Occupational Choice, and the Growth-Inequality Relationship," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 171-201, February.
  19. Eicher, Theo S, 1996. "Interaction between Endogenous Human Capital and Technological Change," Review of Economic Studies, Wiley Blackwell, vol. 63(1), pages 127-44, January.
  20. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
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