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Efficient Ways to Finance Human Capital Investments

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  • Moen, Espen R

Abstract

Standard theory predicts that, if wages are determined by bargaining, workers underinvest in human capital, as they bear all the investment costs yet receive only a share less than one of the return. The author shows that this result depends on the way the investments are financed. He introduces contingent loans, which do not accumulate interest if the borrower is unemployed. When the investments are financed by such loans, the interest payments are regarded as a (negative) part of the surplus the agents bargain over. As a result, a worker pays the same share of the interest as he receives of the return. Copyright 1998 by The London School of Economics and Political Science

Suggested Citation

  • Moen, Espen R, 1998. "Efficient Ways to Finance Human Capital Investments," Economica, London School of Economics and Political Science, vol. 65(260), pages 491-505, November.
  • Handle: RePEc:bla:econom:v:65:y:1998:i:260:p:491-505
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    Cited by:

    1. Lochner, Lance & Monge-Naranjo, Alexander, 2014. "Student Loans and Repayment: Theory, Evidence and Policy," Working Papers 2014-40, Federal Reserve Bank of St. Louis, revised 12 Nov 2014.
    2. Chapman, Bruce, 2006. "Income Contingent Loans for Higher Education: International Reforms," Handbook of the Economics of Education, Elsevier.
    3. Naoki Shintoyo, 2010. "Worker-financed versus Firm-sponsored Training: How are Skilled Workers Supplied to the Economy?," Economica, London School of Economics and Political Science, vol. 77(305), pages 110-127, January.
    4. Kaas, Leo & Zink, Stefan, 2011. "Human capital investment with competitive labor search," European Economic Review, Elsevier, vol. 55(4), pages 520-534, May.
    5. Christian Lumpe & Benjamin Weigert, 2009. "Immigration Policy, Equilibrium Unemployment, and Underinvestment in Human Capital," LABOUR, CEIS, vol. 23(1), pages 97-130, March.
    6. Naoki Shintoyo, 2008. "Creation of jobs and firm-sponsored training in a matching model of unemployment," Journal of Economics, Springer, vol. 93(2), pages 145-176, March.
    7. M. De Paola & V. Scoppa, 2007. "Returns to skills, incentives to study and optimal educational standards," Journal of Economics, Springer, vol. 92(3), pages 229-262, December.
    8. Randolph Sloof, 2005. "Finite Horizon Bargaining With Outside Options And Threat Points," Theory and Decision, Springer, vol. 57(2), pages 109-142, March.
    9. Sato, Yasuhiro, 2004. "City structure, search, and workers' job acceptance behavior," Journal of Urban Economics, Elsevier, vol. 55(2), pages 350-370, March.

    More about this item

    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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