IDEAS home Printed from https://ideas.repec.org/a/bpj/bejeap/v12y2012i1n47.html
   My bibliography  Save this article

Asymmetric Information And Overeducation

Author

Listed:
  • Mendolicchio Concetta

    () (Institute for Employment Research - IAB)

  • Paolini Dimitri

    () (Université Catholique de Louvain)

  • Pietra Tito

    () (Università di Bologna)

Abstract

We consider an economy where production may use labor of two different skill levels. Workers are heterogeneous and, by investing in education, self-select into one of the two skills. Ex-ante, when firms choose their investments in physical capital, they do not know the level of human capital prevailing in the labor market they will be active in. We prove existence and constrained inefficiency of competitive equilibria, which are always characterized by overeducation. An increase in total expected surplus can be obtained by shrinking, at the margin, the set of workers investing in high skills. This can be implemented by imposing taxes on the cost of investing in high skills or by imposing a progressive labor earning tax.

Suggested Citation

  • Mendolicchio Concetta & Paolini Dimitri & Pietra Tito, 2012. "Asymmetric Information And Overeducation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-29, October.
  • Handle: RePEc:bpj:bejeap:v:12:y:2012:i:1:n:47
    as

    Download full text from publisher

    File URL: https://www.degruyter.com/view/j/bejeap.2012.12.issue-1/1935-1682.3259/1935-1682.3259.xml?format=INT
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fleurbaey,Marc & Maniquet,François, 2011. "A Theory of Fairness and Social Welfare," Cambridge Books, Cambridge University Press, number 9780521715348, October.
    2. Willis, Robert J & Rosen, Sherwin, 1979. "Education and Self-Selection," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 7-36, October.
    3. Schmerer, Hans-Jörg, 2014. "Foreign direct investment and search unemployment: Theory and evidence," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 41-56.
    4. Bas Jacobs & A. Lans Bovenberg, 2011. "Optimal Taxation of Human Capital and the Earnings Function," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(6), pages 957-971, December.
    5. Bas Jacobs & Dirk Schindler & Hongyan Yang, 2012. "Optimal Taxation of Risky Human Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(3), pages 908-931, September.
    6. Bas Jacobs, 2005. "Optimal Income Taxation with Endogenous Human Capital," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(2), pages 295-315, May.
    7. Pedro Carneiro & James J. Heckman & Edward J. Vytlacil, 2011. "Estimating Marginal Returns to Education," American Economic Review, American Economic Association, vol. 101(6), pages 2754-2781, October.
    8. A. Lans Bovenberg & Bas Jacobs, 2005. "Redistribution and Education Subsidies are Siamese Twins," Tinbergen Institute Discussion Papers 05-036/3, Tinbergen Institute.
    9. Concetta Mendolicchio & Dimitri Paolini & Tito Pietra, 2014. "Income Taxes, Subsidies to Education, and Investments in Human Capital," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(1), pages 24-47, February.
    10. Séamus McGuinness, 2006. "Overeducation in the Labour Market," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 387-418, July.
    11. Lans Bovenberg, A. & Jacobs, Bas, 2005. "Redistribution and education subsidies are Siamese twins," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2005-2035, December.
    12. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 11-44, August.
    13. Pedro Carneiro & Sokbae Lee, 2011. "Trends in Quality-Adjusted Skill Premia in the United States, 1960-2000," American Economic Review, American Economic Association, vol. 101(6), pages 2309-2349, October.
    14. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-715, September.
    15. Andrew Weiss, 1995. "Human Capital vs. Signalling Explanations of Wages," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 133-154, Fall.
    16. Holzner, Christian & Launov, Andrey, 2010. "Search equilibrium and social and private returns to education," European Economic Review, Elsevier, vol. 54(1), pages 39-59, January.
    17. Oppedisano, Veruska, 2011. "The (adverse) effects of expanding higher education: Evidence from Italy," Economics of Education Review, Elsevier, vol. 30(5), pages 997-1008, October.
    18. Chinhui Juhn & Dae Il Kim & Francis Vella, 2005. "The Expansion of College Education in the United States: Is There Evidence of Declining Cohort Quality?," Economic Inquiry, Western Economic Association International, vol. 43(2), pages 303-315, April.
    19. Sherwin Rosen, 2005. "Substitution And Division Of Labour," World Scientific Book Chapters,in: An Inframarginal Approach To Trade Theory, chapter 3, pages 29-51 World Scientific Publishing Co. Pte. Ltd..
    20. Charlot, Olivier & Decreuse, Bruno, 2005. "Self-selection in education with matching frictions," Labour Economics, Elsevier, vol. 12(2), pages 251-267, April.
    21. Holzner, Christian & Launov, Andrey, 2010. "Search equilibrium and social and private returns to education. Eur. Econ. Rev," Munich Reprints in Economics 19435, University of Munich, Department of Economics.
    22. Daniel Heuermann & Benedikt Halfdanarson & Jens Suedekum, 2010. "Human Capital Externalities and the Urban Wage Premium: Two Literatures and their Interrelations," Urban Studies, Urban Studies Journal Limited, vol. 47(4), pages 749-767, April.
    23. Poeschel, Friedrich, 2012. "The time trend in the matching function," IAB Discussion Paper 201203, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    24. A. D. Roy, 1951. "Some Thoughts On The Distribution Of Earnings," Oxford Economic Papers, Oxford University Press, vol. 3(2), pages 135-146.
    25. Duranton, Gilles & Martin, Philippe & Mayer, Thierry & Mayneris, Florian, 2010. "The Economics of Clusters: Lessons from the French Experience," OUP Catalogue, Oxford University Press, number 9780199592203.
    26. Anderberg, Dan & Andersson, Fredrik, 2003. "Investments in human capital, wage uncertainty, and public policy," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1521-1537, August.
    27. Heckman, James & Layne-Farrar, Anne & Todd, Petra, 1996. "Human Capital Pricing Equations with an Application to Estimating the Effect of Schooling Quality on Earnings," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 562-610, November.
    28. Daron Acemoglu, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 779-804.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mendolicchio, Concetta & Pietra, Tito, 2014. "On the efficiency properties of the Roy's model under asymmetric information," IAB Discussion Paper 201408, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    2. Concetta Mendolicchio & Dimitri Paolini & Tito Pietra, 2014. "Income Taxes, Subsidies to Education, and Investments in Human Capital," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(1), pages 24-47, February.
    3. DEIDDA, Luca G. & PAOLINI , Dimitri & ,, 2013. "Wage premia, education race, and supply of educated workers," CORE Discussion Papers 2013062, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Dauth, Wolfgang & Südekum, Jens, 2012. "Profiles of local growth and industrial change : facts and an explanation," IAB Discussion Paper 201220, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    5. Mertens, Jean-François & Rubinchik, Anna, 2015. "Pareto Optimality Of The Golden Rule Equilibrium In An Overlapping Generations Model With Production And Transfers," Macroeconomic Dynamics, Cambridge University Press, vol. 19(08), pages 1780-1799, December.

    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejeap:v:12:y:2012:i:1:n:47. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla). General contact details of provider: https://www.degruyter.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.