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Wealth Distribution, Investment in Human Capital and Occupational Choice when Capital Markets are Imperfect

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  • Riccarda Longaretti

    (University of Milan)

Abstract

I develop a model in order to study long-run effects of the heterogeneity of wealth and efficiency among agents. More precisely I consider overlapping generations of agents who differ from one another in wealth and inefficiency level. Those agents, when young, choose whether to invest or not in human capital. Since the net return of human capital investment is positive, agents who can afford human capital investment, do invest. In the second period of life, agents make an occupational choice. They choose if being workers or entrepreneurs. There exists a critical level of inefficiency below which becoming entrepreneur is profitable. The wealth distribution of agents changes over time because of wealth accumulation process. The long run distribution is stationary and can be ergodic or not, with long-run occupational mobility or not. Theoretical results are analyzed in a redistributive policy perspective. When long-run distribution of wealth is ergodic, one-shot redistributive policies are ineffective, whereas repetitive redistribution are effective. When lung-run distribution collapses to a unique level of wealth and to a unique occupation, no kind of redistributive policy is possible.

Suggested Citation

  • Riccarda Longaretti, 2001. "Wealth Distribution, Investment in Human Capital and Occupational Choice when Capital Markets are Imperfect," CeNDEF Workshop Papers, January 2001 5B.2, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    • Handle: RePEc:ams:cdws01:5b.2
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