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Literacy Traps: Society-wide Education and Individual Skill Premia

  • Atal, Vidya


    (Cornell University)

  • Basu, Kaushik


    (World Bank)

  • Gray, John


    (Cornell University)

  • Lee, Travis


    (Cornell University)

Using a model of O-ring production function, the paper demonstrates how certain communities can get caught in a low-literacy trap in which each individual finds it not worthwhile investing in higher skills because others are not high-skilled. The model sheds light on educational policy. It is shown that policy for promoting human capital has to take the form of a mechanism for solving the coordination failure in people’s choice of educational strategy.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4047.

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Length: 19 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4047
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References listed on IDEAS
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  1. Dreze, Jean & Kingdon, Geeta Gandhi, 2001. "School Participation in Rural India," Review of Development Economics, Wiley Blackwell, vol. 5(1), pages 1-24, February.
  2. Mehtabul Azam, 2007. "India’s Increasing Skill Premium: Role of Demand and Supply," Departmental Working Papers 0710, Southern Methodist University, Department of Economics.
  3. Dechert, W. Davis & Nishimura, Kazuo, 1983. "A complete characterization of optimal growth paths in an aggregated model with a non-concave production function," Journal of Economic Theory, Elsevier, vol. 31(2), pages 332-354, December.
  4. repec:oup:qjecon:v:108:y:1993:i:3:p:619-52 is not listed on IDEAS
  5. Redding, Stephen, 1996. "The Low-Skill, Low-Quality Trap: Strategic Complementarities between Human Capital and R&D," Economic Journal, Royal Economic Society, vol. 106(435), pages 458-70, March.
  6. Jorge Saba Arbache & Andy Dickerson & Francis Green, 2004. "Trade Liberalisation and Wages in Developing Countries," Economic Journal, Royal Economic Society, vol. 114(493), pages F73-F96, 02.
  7. James E. Rauch, 1991. "Productivity Gains From Geographic Concentration of human Capital: Evidence From the Cities," NBER Working Papers 3905, National Bureau of Economic Research, Inc.
  8. repec:oup:qjecon:v:108:y:1993:i:3:p:551-75 is not listed on IDEAS
  9. Benjamin F. Jones, 2008. "The Knowledge Trap: Human Capital and Development Reconsidered," NBER Working Papers 14138, National Bureau of Economic Research, Inc.
  10. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Mukul Majumdar & Tapan Mitra, 1995. "Patterns Of Trade And Growth Under Increasing Returns: Escape From The Poverty Trap," The Japanese Economic Review, Japanese Economic Association, vol. 46(3), pages 207-223, 09.
  12. Majumdar, Mukul & Mitra, Tapan, 1982. "Intertemporal allocation with a non-convex technology: The aggregative framework," Journal of Economic Theory, Elsevier, vol. 27(1), pages 101-136, June.
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