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Peer Effects and the Promise of Social Mobility: A Model of Human Capital Investment

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  • Chris Bidner

    () (School of Economics, University of New South Wales)

Abstract

I analyze a model of human capital development in the presence of peer effects. Parents invest in their child, and this investment conveys a positive externality upon the child’s peers. Parents also acquire wealth, which i) finances consumption, and ii) determines a child’s peer group. I show how the freedom to compete for desirable peers exacerbates the natural underinvestment problem. The analysis thereby produces a general equilibrium framework in which the inefficiencies displayed in a rat-race interact with those stressed in the multi-tasking literature. I consider an extension in which both wealth and parental investment are observed with noise.

Suggested Citation

  • Chris Bidner, 2010. "Peer Effects and the Promise of Social Mobility: A Model of Human Capital Investment," Discussion Papers 2010-09, School of Economics, The University of New South Wales.
  • Handle: RePEc:swe:wpaper:2010-09
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2010-09.pdf
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    References listed on IDEAS

    as
    1. de Bartolome, Charles A M, 1990. "Equilibrium and Inefficiency in a Community Model with Peer Group Effects," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 110-133, February.
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    Keywords

    Peer Effects; Premarital Investment; Matching; Human Capital;

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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