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Educational Policy and Skill Heterogeneity with Credit Market Imperfections

  • John Fender

    (University of Birmingham, UK)

  • Ping Wang

    ()

    (Department of Economics, Vanderbilt University)

An overlapping-generations model where agents choose whether to become educated when young is presented. Education enhances productivity, but needs to be financed by borrowing. Because of the possibility of default, lenders may ration credit. We characterize the steady-state equilibrium with and without credit constraints and show that credit rationing tends to be associated with lower education and a lower real interest rate. We then examine the role of public policy in remedying the inefficiency which occurs in the presence of credit rationing and derive results on optimal public education spending and on allocative and distributional issues.

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File URL: http://www.accessecon.com/pubs/VUECON/vu00-w21.pdf
File Function: First version, 2000
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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0021.

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Date of creation: Jun 2000
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Handle: RePEc:van:wpaper:0021
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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