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Educational Policy in a Credit Constrained Economy with Skill Heterogeneity

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Author Info
John Fender (Unversity 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 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.vanderbilt.edu/Econ/wparchive/workpaper/vu01-w33.pdf
File Format: application/pdf
File Function: First version, 2001
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Publisher Info
Paper provided by Department of Economics, Vanderbilt University in its series 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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Related research
Keywords: Education; credit constraints; 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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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.:

  1. Barham, Vicky & Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 1995. "Education and the poverty trap," European Economic Review, Elsevier, vol. 39(7), pages 1257-1275, August. [Downloadable!] (restricted)
    Other versions:
  2. Lazear, Edward P, 1980. "Family Background and Optimal Schooling Decisions," The Review of Economics and Statistics, MIT Press, vol. 62(1), pages 42-51, February. [Downloadable!] (restricted)
  3. 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.
  4. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 35-52, January. [Downloadable!] (restricted)
  5. Robert J. Barro, 2001. "Human Capital and Growth," American Economic Review, American Economic Association, vol. 91(2), pages 12-17, May. [Downloadable!] (restricted)
  6. Hart, Oliver & Moore, John, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 841-79, November. [Downloadable!] (restricted)
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  7. Fernandez, Raquel & Rogerson, Richard, 1995. "On the Political Economy of Education Subsidies," Review of Economic Studies, Blackwell Publishing, vol. 62(2), pages 249-62, April. [Downloadable!] (restricted)
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  8. Azariadis Costas & Smith Bruce D., 1993. "Adverse Selection in the Overlapping Generations Model: The Case of Pure Exchange," Journal of Economic Theory, Elsevier, vol. 60(2), pages 277-305, August. [Downloadable!] (restricted)
  9. 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 813-34, August.
  10. Laing, Derek & Palivos, Theodore & Wang, Ping, 1995. "Learning, Matching and Growth," Review of Economic Studies, Blackwell Publishing, vol. 62(1), pages 115-29, January. [Downloadable!] (restricted)
  11. Tsiddon, Daniel, 1992. "A Moral Hazard Trap to Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 299-321, May. [Downloadable!] (restricted)
  12. De Gregorio, Jose, 1996. "Borrowing constraints, human capital accumulation, and growth," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 49-71, February. [Downloadable!] (restricted)
  13. Timothy J. Kehoe & David K. Levine, 1992. "Debt constrained asset markets," Working Papers 445, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  14. Eicher, Theo S, 1996. "Interaction between Endogenous Human Capital and Technological Change," Review of Economic Studies, Blackwell Publishing, vol. 63(1), pages 127-44, January. [Downloadable!] (restricted)
  15. Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February. [Downloadable!] (restricted)
  16. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April. [Downloadable!] (restricted)
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  17. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August. [Downloadable!] (restricted)
  18. Jacoby, Hanan G & Skoufias, Emmanuel, 1997. "Risk, Financial Markets, and Human Capital in a Developing Country," Review of Economic Studies, Blackwell Publishing, vol. 64(3), pages 311-35, July. [Downloadable!] (restricted)
  19. Jappelli, Tullio & Pagano, Marco, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 83-109, February. [Downloadable!] (restricted)
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  20. Wang, Ping, 1993. "Money, competitive efficiency, and intergenerational transactions," Journal of Monetary Economics, Elsevier, vol. 32(2), pages 303-320, November. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, 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.)

  1. Ho, Wai-Hong, 2008. "Credit Market Development and Human Capital Accumulation," MPRA Paper 16760, University Library of Munich, Germany. [Downloadable!]
  2. Basab Dasgupta, 2005. "Liquidity Constraint and Child Labor In India: Is Market Really Incapable Of Eradicating It From Wage-Labor Households?," Working papers 2005-37, University of Connecticut, Department of Economics. [Downloadable!]
  3. John Hassler & José Rodríguez Mora & Joseph Zeira, 2007. "Inequality and mobility," Journal of Economic Growth, Springer, vol. 12(3), pages 235-259, September. [Downloadable!] (restricted)
    Other versions:
  4. Neville N. Jiang & Ping Wang & Haibin Wu, 2002. "Finance Thy Growth: The Role of Occupational Choice By Ability-Heterogeneous Agents," Working Papers 0228, Department of Economics, Vanderbilt University, revised Oct 2003. [Downloadable!]
  5. Mohamed Ben Mimoun, 2004. "Redistribution Through Education and Other Mechanisms Under. Capital-Market Imperfections and Uncertainty : A Welfare Effect Analysis," Cahiers de la Maison des Sciences Economiques bla04110, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
    Other versions:
  6. Sorokina, Olga V., 2009. "Credit Constraints in the Demand for Education: Evidence from Survey Data," MPRA Paper 11932, University Library of Munich, Germany. [Downloadable!]
  7. Mino, Kazuo & Koji, Shimomura & Wang, Ping, 2003. "Occupational Choice and Dynamic Indeterminacy," MPRA Paper 17063, University Library of Munich, Germany. [Downloadable!]
    Other versions:
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