Educational Choice, Credit Constraints and Public Policy in an Overlapping Generations Framework
This paper develops a two-period overlapping generations model where agents choose whether to become educated when young. While education enhances productivity, it needs to be financed by borrowing. Because of the possibility of default, lenders may ration credit. We characterize the steady-state equilibrium with and without credit constraints and show that credit rationing tends to discourage education and raise the real rate of interest.
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|Date of creation:||1996|
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