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Informal Credit Markets, Common-pool Resources and Education

Author

Listed:
  • Frederik Noack

    (Bren School of Environmental Science & Management, University of California Santa Barbara)

  • Marie–Catherine Riekhof

    (ETH Zurich, Switzerland)

Abstract

The paper analyses the effect of interest rate changes on education and child labor in an economy with a high-skilled sector, a low-skilled sector and fragmented credit markets. The high-skilled sector takes educated labor as input. The low-skilled sector takes unskilled labor, physical capital and natural common-pool resources as inputs. Credit supply consists of (a) loans with collateral in form of productive investments in the low-skilled sector and (b) higher-priced loans without collateral. Lower interest rates increase the net present value of the returns to education. They also reduce costs of capital investment in current production. This increases labor productivity and the opportunity costs of education. Overuse of the common-pool resource can reverse this productivity effect. We show that the overall effect of interest rate changes on education depends on the initial wealth of the household, resource use and the credit market segment that is subject to improvements.

Suggested Citation

  • Frederik Noack & Marie–Catherine Riekhof, 2016. "Informal Credit Markets, Common-pool Resources and Education," CER-ETH Economics working paper series 16/252, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:16-252
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    File URL: http://www.cer.ethz.ch/content/dam/ethz/special-interest/mtec/cer-eth/cer-eth-dam/documents/working-papers/WP-16-252.pdf
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    More about this item

    Keywords

    Informal Credit Markets; Education; Common-pool Resources; Child Labor; Fragmented Credit Markets; Common-pool Externality;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General

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