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Schooling, wages and profits: Negative pecuniary externalities from schooling and their consequences for schooling investments


  • Kochar, Anjini


This paper tests the hypothesis that the schooling of the poor reduces profits for landowners, and that such negative pecuniary externalities in turn adversely affect schooling investments made by local governments. A theoretical model of occupational choice in the presence of credit and labor market constraints, combined with existing political economy models of the delivery of local public goods delivers such a result. This hypothesis is tested using household data from India. The empirical analysis shows that profits are reduced by the schooling of the poor and that this is primarily because of the effect of schooling on wages. It also shows that the negative effect of wages on profits reduces government provided schooling inputs.

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  • Kochar, Anjini, 2008. "Schooling, wages and profits: Negative pecuniary externalities from schooling and their consequences for schooling investments," Journal of Development Economics, Elsevier, vol. 86(1), pages 76-95, April.
  • Handle: RePEc:eee:deveco:v:86:y:2008:i:1:p:76-95

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    References listed on IDEAS

    1. Mark R. Rosenzweig & Kenneth I. Wolpin, 1985. "Specific Experience, Household Structure, and Intergenerational Transfers: Farm Family Land and Labor Arrangements in Developing Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 961-987.
    2. Topel, Robert, 1999. "Labor markets and economic growth," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 44, pages 2943-2984 Elsevier.
    3. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    4. Bourguignon, Francois & Verdier, Thierry, 2000. "Oligarchy, democracy, inequality and growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 285-313, August.
    5. Galasso, Emanuela & Ravallion, Martin, 2000. "Distributional outcomes of a decentralized welfare program," Policy Research Working Paper Series 2316, The World Bank.
    6. Dilip Mookherjee & Pranab K. Bardhan, 2000. "Capture and Governance at Local and National Levels," American Economic Review, American Economic Association, vol. 90(2), pages 135-139, May.
    7. Pranab Bardhan & Dilip Mookherjee, 2006. "Decentralisation and Accountability in Infrastructure Delivery in Developing Countries," Economic Journal, Royal Economic Society, vol. 116(508), pages 101-127, January.
    8. Gene M. Grossman & Elhanan Helpman, 1996. "Electoral Competition and Special Interest Politics," Review of Economic Studies, Oxford University Press, vol. 63(2), pages 265-286.
    9. Robert H. Topel, 1997. "Factor Proportions and Relative Wages: The Supply-Side Determinants of Wage Inequality," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 55-74, Spring.
    10. Kochar, Anjini, 2004. "Urban influences on rural schooling in India," Journal of Development Economics, Elsevier, vol. 74(1), pages 113-136, June.
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    Cited by:

    1. Kim, Se-Um, 2008. "The Technological Origins of the High School Movement," MPRA Paper 12087, University Library of Munich, Germany.
    2. repec:unu:wpaper:wp2012-97 is not listed on IDEAS

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