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Human Capital Values and Returns:Bounds Implied By Earnings and Asset Returns Data

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Abstract

We provide theory for calculating bounds on both the value of an individual's human capital and the return on an individual's human capital, given knowledge of the process governing earnings and financial asset returns. We calculate bounds using U.S. data on male earnings and financial asset returns. The large idiosyncratic component of earnings risk implies that bounds on values and returns are quite loose. However, when aggregate shocks are the only source of earnings risk, both bounds are tight.

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  • Mark Huggett and Greg Kaplan, 2010. "Human Capital Values and Returns:Bounds Implied By Earnings and Asset Returns Data," Working Papers gueconwpa~10-10-02, Georgetown University, Department of Economics.
  • Handle: RePEc:geo:guwopa:gueconwpa~10-10-02
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    1. Constantinides, George M & Duffie, Darrell, 1996. "Asset Pricing with Heterogeneous Consumers," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 219-240, April.
    2. John H. Cochrane & Jesus Saa-Requejo, 2000. "Beyond Arbitrage: Good-Deal Asset Price Bounds in Incomplete Markets," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 79-119, February.
    3. Mark Huggett & Gustavo Ventura & Amir Yaron, 2011. "Sources of Lifetime Inequality," American Economic Review, American Economic Association, vol. 101(7), pages 2923-2954, December.
    4. Storesletten, Kjetil & Telmer, Christopher I. & Yaron, Amir, 2004. "Consumption and risk sharing over the life cycle," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 609-633, April.
    5. John Y. Campbell, 2006. "Household Finance," Journal of Finance, American Finance Association, vol. 61(4), pages 1553-1604, August.
    6. Hansen, Lars Peter & Jagannathan, Ravi, 1991. "Implications of Security Market Data for Models of Dynamic Economies," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 225-262, April.
    7. Mark Huggett and Greg Kaplan, 2012. "The Money Value of a Man," Working Papers gueconwpa~12-12-02, Georgetown University, Department of Economics.
    8. Meghir, Costas & Pistaferri, Luigi, 2011. "Earnings, Consumption and Life Cycle Choices," Handbook of Labor Economics, Elsevier.
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    Cited by:

    1. Mark Huggett and Greg Kaplan, 2012. "The Money Value of a Man," Working Papers gueconwpa~12-12-02, Georgetown University, Department of Economics.
    2. Jan Voelzke & Jeanne Diesteldorf & Fabian Goessling & Till Weigt, 2017. "Investors' favourite - A different look at valuing individual labour income," CQE Working Papers 6017, Center for Quantitative Economics (CQE), University of Muenster.
    3. Voelzke, Jan & Gößling, Fabian & Diesteldorf, Jeanne & Weigt, Till, 2017. "Investors' favourite - A different look at valuing individual labour income," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168065, Verein für Socialpolitik / German Economic Association.
    4. Mark Huggett & Greg Kaplan, 2016. "How Large is the Stock Component of Human Capital?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 22, pages 21-51, October.
    5. Runli Xie, 2011. "Human Capital Formation on Skill-Specific Labor Markets," SFB 649 Discussion Papers SFB649DP2011-011, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    6. Corbae, Dean & Marimon, Ramon, 2011. "Introduction to Incompleteness and Uncertainty in Economics," Journal of Economic Theory, Elsevier, vol. 146(3), pages 775-784, May.
    7. repec:rsr:supplm:v:65:y:2017:i:4:p:107-114 is not listed on IDEAS
    8. repec:pri:cepsud:238kaplan.pdf is not listed on IDEAS
    9. repec:pri:cepsud:238kaplan is not listed on IDEAS
    10. repec:rsr:supplm:v:65:y:2017:i:4:p:87-98 is not listed on IDEAS

    More about this item

    Keywords

    Value of Human Capital; Return on Human Capital; Asset Pricing;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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