Asset Market Structure and Growth
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.
|Date of creation:||01 Jul 2000|
|Publication status:||Published in RISEC: International-Review-of-Economics-and-Business, 2002, vol. 49, pages 491-510|
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