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Optimal Policy and the Risk-Properties of Human Capital Reconsidered

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  • Dan Anderberg

    (Royal Holloway University of London)

Abstract

This paper considers how optimal education and tax policy depends on the risk properties of human capital. It is demonstrated that a key feature of human capital investments is whether they increase or decrease wage risk. In a benchmark model it is shown that this feature alone determines whether a constrained optimal allocation should be characterized by a positive or a negative education premium. In the same model a positive intertemporal wedge is optimal. A set of generalizations, including non-observability of education, non-observability of consumption, and temporal resolution of uncertainty, are then considered to examine the robustness of these results.

Suggested Citation

  • Dan Anderberg, 2009. "Optimal Policy and the Risk-Properties of Human Capital Reconsidered," 2009 Meeting Papers 166, Society for Economic Dynamics.
    • Handle: RePEc:red:sed009:166
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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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