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Intergenerational Interactions in Human Capital Accumulation

  • Wozny Lukasz

    ()

    (Warsaw School of Economics)

  • Growiec Jakub

    ()

    (Warsaw School of Economics)

This paper considers an economy populated by a sequence of generations who decide over their consumption and investment in human capital of their immediate descendants. In such a framework, we first identify the impact of strategic interactions between consecutive generations on the time path of human capital accumulation. To this end, we characterize the decentralized Markov stationary Nash equilibrium (MSNE) and derive the sufficient conditions for its existence and uniqueness. We then provide sufficient conditions under which human capital accumulation is unambiguously (pointwise) lower in the ``strategic'' equilibrium than under the optimal dynastic policy, and discuss an example where this ordering does not hold. Secondly, we also run a numerical sensitivity analysis to assess the magnitude of discrepancies between the two analyzed cases and discuss the potential implications of overestimation of the human capital role if intergenerational interactions are not accounted for.

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Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 12 (2012)
Issue (Month): 1 (June)
Pages: 1-47

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Handle: RePEc:bpj:bejtec:v:12:y:2012:i:1:n:20
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