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Literacy traps: Society‐wide education and individual skill premia

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

Abstract

Using a model of an O‐ring production function, the present paper demonstrates how certain communities can get caught in a low‐literacy trap in which each individual finds that it is 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.

Suggested Citation

  • Vidya Atal & Kaushik Basu & John Gray & Travis Lee, 2010. "Literacy traps: Society‐wide education and individual skill premia," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(1), pages 137-148, March.
    • Handle: RePEc:bla:ijethy:v:6:y:2010:i:1:p:137-148
    DOI: 10.1111/j.1742-7363.2009.00126.x
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    Cited by:

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    2. Gerhard Toews & Alexander Libman, 2017. "Getting Incentives Right: Human Capital Investment and Natural Resource Booms," Working Papers 370, Leibniz Institut für Ost- und Südosteuropaforschung (Leibniz Institute for East and Southeast European Studies).

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    More about this item

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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