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A Simple Economic Theory of Skill Accumulation and Schooling Decisions

Author

Listed:
  • William Blankenau

    (Kansas State University)

  • Gabriele Camera

    (Purdue University)

Abstract

We propose a model of schooling that can account for the observed heterogeneity in workers' productivity and educational attainment. Identical unskilled agents can get a degree at a cost, but becoming skilled entails an additional unobservable effort cost. Individual labor can then be used as an input in pairwise production matches. Two factors affect students' desire to build human capital: degrees imperfectly signal productivity, and contract imperfections generate holdup problems. Multiple stationary equilibria exist, some of which are market failures characterized by a largely educated workforce of low average skill. Policy implications are explored. (Copyright: Elsevier)

Suggested Citation

  • William Blankenau & Gabriele Camera, 2006. "A Simple Economic Theory of Skill Accumulation and Schooling Decisions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 93-115, January.
  • Handle: RePEc:red:issued:v:9:y:2006:i:1:p:93-115
    DOI: 10.1016/j.red.2005.05.002
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. Bidner, Chris, 2010. "Pre-match investment with frictions," Games and Economic Behavior, Elsevier, vol. 68(1), pages 23-34, January.
    3. Viaene, Jean-Marie & Zilcha, Itzhak, 2013. "Public funding of higher education," Journal of Public Economics, Elsevier, vol. 108(C), pages 78-89.
    4. Blankenau, William F. & Gao, Yuan, 2014. "Admission standards, student effort, and the creation of skilled jobs," Economic Modelling, Elsevier, vol. 43(C), pages 209-216.
    5. William Blankenau & Gabriele Camera, 2009. "Public Spending on Education and the Incentives for Student Achievement," Economica, London School of Economics and Political Science, vol. 76(303), pages 505-527, July.
    6. Davidson, Carl & Sly, Nicholas, 2014. "A simple model of globalization, schooling and skill acquisition," European Economic Review, Elsevier, vol. 71(C), pages 209-227.
    7. Christian Manger, 2014. "Endogenous age discrimination," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(4), pages 1087-1106, October.
    8. Masashi Tanaka, 2013. "Human Capital Investment, Credentialing, and Wage Differentials," Discussion Papers in Economics and Business 13-31-Rev., Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Aug 2017.
    9. Schiopu, Ioana, 2015. "Technology adoption, human capital formation and income differences," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 318-335.
    10. Masashi Tanaka, 2013. "Human capital investment, Signaling, and Wage differentials," Discussion Papers in Economics and Business 13-31, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

    More about this item

    Keywords

    Education Policy; Education Finance; Human Capital; Informational Frictions; Matching; Multiple Equilibria.;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • I2 - Health, Education, and Welfare - - Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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