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Endogenous capital market imperfections, human capital, and intergenerational mobility

  • Hidalgo Cabrillana, Ana

In this paper, capital market imperfections are endogenized considering an adverse selection problem between banks and borrowers. We develop a growth model with linear OLG wealth dynamics, where agents are heterogeneous in terms of observable wealth and ability, which is private information. We show that banks react to this informational asymmetry by granting higher loans to talented borrowers. This, in turn, helps poor and talented agents to become educated and catch up with the rich agents. Furthermore, the credit market friction leads to greater human capital accumulation.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 90 (2009)
Issue (Month): 2 (November)
Pages: 285-298

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Handle: RePEc:eee:deveco:v:90:y:2009:i:2:p:285-298
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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  16. 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 274-98, April.
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  18. Bose, Niloy & Cothren, Richard, 1997. "Asymmetric Information and Loan Contracts in a Neoclassical Growth Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 423-39, November.
  19. Moav, Omer, 2002. "Income distribution and macroeconomics: the persistence of inequality in a convex technology framework," Economics Letters, Elsevier, vol. 75(2), pages 187-192, April.
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  21. Dynarski, Mark, 1994. "Who defaults on student loans? Findings from the National Postsecondary Student Aid Study," Economics of Education Review, Elsevier, vol. 13(1), pages 55-68, March.
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  23. David de Meza & David C. Webb, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 281-292.
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  26. Jaap H. Abbring & James J. Heckman & Pierre-André Chiappori & Jean Pinquet, 2003. "Adverse Selection and Moral Hazard In Insurance: Can Dynamic Data Help to Distinguish?," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 512-521, 04/05.
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