Occupational Mobility and Wealth Evolution in a Simple Model of Educational Investment with Credit Market Imperfections
We consider a model of occupational choice with credit market imperfections and local non convexities in education investment. The implications of individual heterogeneity for the evolution of wealth distribution and policies are studied. Convergence of the wealth distribution is obtained whenever the (exogenous) distribution of education costs entails the presence inefficient types, regardless of how ”large” the support of the random ability parameter is. Conversely, poverty traps can emerge only if investment is efficient for every single agent in the economy. We explore conditions under which wealth accumulation eliminates the effects of financial market imperfection. Interestingly we show that, a necessary feature of steady states with occupational mobility is that wealth constraints, whenever they bind investment choices in the long run, they must bind for households in both occupations. Persistence of wealth constraints motivates our exploration of policies. Compared to the case of homogeneous ability, we show that heterogeneity requires more persistent policies to achieve similar results in terms of enhanced investment opportunities and income per capita. It is also shown that the scope for policies is larger under heterogeneity: policies can be effective in environments where they would fail in a world of homogeneous abilities.
|Date of creation:||05 Dec 2011|
|Date of revision:|
|Publication status:||Published in The Journal of Economic Inequality, 2014, 12(1), 73-98|
|Contact details of provider:|| Postal: |
Phone: +39 081 - 675372
Fax: +39 081 - 675372
Web page: http://www.csef.it/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Banerjee, Abhijit V & Newman, Andrew F, 1993.
"Occupational Choice and the Process of Development,"
Journal of Political Economy,
University of Chicago Press, vol. 101(2), pages 274-98, April.
- Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- Banerjee, Abhijit Vinayak & Benabou, Roland & Mookherjee, Dilip (ed.), 2006. "Understanding Poverty," OUP Catalogue, Oxford University Press, number 9780195305203, March.
- Azariadis, Costas & Stachurski, John, 2005.
Handbook of Economic Growth,
in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 5
- Galor, Oded & Zeira, Joseph, 1993.
"Income Distribution and Macroeconomics,"
Review of Economic Studies,
Wiley Blackwell, vol. 60(1), pages 35-52, January.
- Barrett , Christopher B & Carter , Michael R & Ikegami , Munenobu, 2008. "Poverty traps and social protection," Social Protection Discussion Papers 42752, The World Bank.
- Dilip Mokherjee & Stefan Napel, 2006.
"Intergenerational Mobility and Macroeconomic History Dependence,"
1, Aboa Centre for Economics.
- Mookherjee, Dilip & Napel, Stefan, 2007. "Intergenerational mobility and macroeconomic history dependence," Journal of Economic Theory, Elsevier, vol. 137(1), pages 49-78, November.
When requesting a correction, please mention this item's handle: RePEc:sef:csefwp:300. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lia Ambrosio)
If references are entirely missing, you can add them using this form.