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Literacy traps: Society-wide education and individual skill premia

  • Vidya Atal
  • Kaushik Basu
  • John Gray
  • Travis Lee

Using a model of O-ring production function, the paper demonstrates how certain communities can get caught in a low-literacy trap in which each individual finds it not worthwhile investing in higher skills because others are not high-skilled. The model sheds light on educational policy. It is shown that policy for promoting human capital has to take the form of a mechanism for solving the coordination failure in people's choice of educational strategy.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1742-7363.2009.00126.x
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Article provided by The International Society for Economic Theory in its journal International Journal of Economic Theory.

Volume (Year): 6 (2010)
Issue (Month): 1 ()
Pages: 137-148

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Handle: RePEc:bla:ijethy:v:6:y:2010:i:1:p:137-148
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  1. Benabou, Roland, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 619-52, August.
  2. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Dechert, W. Davis & Nishimura, Kazuo, 1983. "A complete characterization of optimal growth paths in an aggregated model with a non-concave production function," Journal of Economic Theory, Elsevier, vol. 31(2), pages 332-354, December.
  4. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
  5. Dreze, Jean & Kingdon, Geeta Gandhi, 2001. "School Participation in Rural India," Review of Development Economics, Wiley Blackwell, vol. 5(1), pages 1-24, February.
  6. James E. Rauch, 1991. "Productivity Gains From Geographic Concentration of human Capital: Evidence From the Cities," NBER Working Papers 3905, National Bureau of Economic Research, Inc.
  7. Mehtabul Azam, 2007. "India’s Increasing Skill Premium: Role of Demand and Supply," Departmental Working Papers 0710, Southern Methodist University, Department of Economics.
  8. Mukul Majumdar & Tapan Mitra, 1995. "Patterns Of Trade And Growth Under Increasing Returns: Escape From The Poverty Trap," The Japanese Economic Review, Japanese Economic Association, vol. 46(3), pages 207-223, 09.
  9. Michael Kremer & Edward Miguel & Rebecca Thornton, 2004. "Incentives to Learn," NBER Working Papers 10971, National Bureau of Economic Research, Inc.
  10. Majumdar, Mukul & Mitra, Tapan, 1982. "Intertemporal allocation with a non-convex technology: The aggregative framework," Journal of Economic Theory, Elsevier, vol. 27(1), pages 101-136, June.
  11. Jorge Saba Arbache & Andy Dickerson & Francis Green, 2004. "Trade Liberalisation and Wages in Developing Countries," Economic Journal, Royal Economic Society, vol. 114(493), pages F73-F96, 02.
  12. Benjamin F. Jones, 2008. "The Knowledge Trap: Human Capital and Development Reconsidered," NBER Working Papers 14138, National Bureau of Economic Research, Inc.
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