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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"Income Distribution and Macroeconomics,"
51644, University Library of Munich, Germany, revised 01 Sep 1989.
- 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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7769, National Bureau of Economic Research, Inc.
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- Ljungqvist, Lars, 1993. "Economic underdevelopment : The case of a missing market for human capital," Journal of Development Economics, Elsevier, vol. 40(2), pages 219-239, April.
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