Educational Signaling, Credit Constraints and Inequality Dynamics
We present a dynamic OLG model of educational signaling and inequality with missing credit markets. Agents are characterized by two sources of unobserved heterogeneity: ability and parental income, consistent with empirical evidence on returns to schooling. Both quantity and quality of human capital evolve endogenously. The model generates a Kuznets inverted-U pattern in skill premia similar to historical US and UK experience. In the first (resp. later) phase the skill premium rises (falls), social returns to education exceed (falls below) private returns: under-investment owing to financial imperfections dominate (are dominated by) over-investment owing to signaling distortions. There always exist Pareto-improving policy interventions reallocating education between poor and rich children.
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|Date of creation:||Jan 2010|
|Date of revision:|
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Web page: http://www.bu.edu/econ/
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"Educational Opportunity and Income Inequality,"
NBER Working Papers
10879, National Bureau of Economic Research, Inc.
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Oxford University Press, vol. 60(1), pages 35-52.
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"Intergenerational mobility and macroeconomic history dependence,"
Journal of Economic Theory,
Elsevier, vol. 137(1), pages 49-78, November.
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"Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems,"
NBER Working Papers
7769, National Bureau of Economic Research, Inc.
- Card, David, 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," Econometrica, Econometric Society, vol. 69(5), pages 1127-60, September.
- Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-64, October.
- Tali Regev, 2007. "Imperfect information, self-selection and the market for higher education," Working Paper Series 2007-18, Federal Reserve Bank of San Francisco.
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