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Asset Market Structure and Growth

  • Pighi Braila

    ()

    (CSEF, Università di Salerno, and CORE, UCL Belgium)

  • Alessandro Turrini

    (Università di Bergamo and Centro Luca Dagliano, Università Luigi Bocconi, Italy)

In this paper we illustrate the possible normative relevance of the links between human capital and financial assets via an example related to growth. Human capital investments occur in a risky environment, in that they are subject to aggregate uncertainty. Agents are heterogenous in their income streams, and this generates different risk attitudes and the scope for trading in financial assets. In this environment, human capital is a non-marketable asset that interacts with the existing financial structure in transferring wealth over time.When the financial structure is complete, growth is indeterminate because individual allocations between human capital and a tradable asset are indeterminate. When the financial structure is incomplete, the growth rate depends on the payoff structure of the assets. An issue of optimality for the structure of asset returns is raised.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 45.

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Date of creation: 01 Jul 2000
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Publication status: Published in RISEC: International-Review-of-Economics-and-Business, 2002, vol. 49, pages 491-510
Handle: RePEc:sef:csefwp:45
Contact details of provider: Postal: I-80126 Napoli
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  1. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 755-76, October.
  2. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
  3. Weil, Philippe, 1992. "Equilibrium asset prices with undiversifiable labor income risk," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 769-790.
  4. Geanakoplos, John, 1990. "An introduction to general equilibrium with incomplete asset markets," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 1-38.
  5. Galor, Oded & Tsiddon, Daniel, 1996. "Income Distribution and Growth: The Kuznets Hypothesis Revisited," Economica, London School of Economics and Political Science, vol. 63(250), pages S103-17, Suppl..
  6. Jacoby, Hanan G & Skoufias, Emmanuel, 1997. "Risk, Financial Markets, and Human Capital in a Developing Country," Review of Economic Studies, Wiley Blackwell, vol. 64(3), pages 311-35, July.
  7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  8. Demange Gabrielle & Laroque Guy, 1995. "Optimality of Incomplete Markets," Journal of Economic Theory, Elsevier, vol. 65(1), pages 218-232, February.
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