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Educational Policy in a Credit Constrained Economy with Skill Heterogeneity

  • John Fender

    (Unversity 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 constraints are associated with lower education and a lower real interest rate. We then study the role of public policy in remedying the inefficiency which occurs with credit market imperfections and examine whether public education can improve on the constrained equilibrium.

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File Function: First version, 2001
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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0133.

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Date of creation: Dec 2001
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Handle: RePEc:van:wpaper:0133
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