Like father, like son: Social networks, human capital investment, and social mobility

Antoni Calvó-Armengol and Matthew Jackson

No 1242, Working Papers from California Institute of Technology, Division of the Humanities and Social Sciences

Abstract: We build a model where an individual sees higher returns to investments in human capital when their neighbors in a social network have higher levels of human capital. We show that the correlation of human capital across generations of a given family is directly related to the sensitivity of individual investment decisions to the state of the social network. Increasing the sensitivity leads to increased intergenerational correlation, as well as more costly investment decisions on average in the society. We calibrate a simple threshold version of the model to data from a variety of EU nations. We also show how directly analyzing sensitivity of decisions to social circumstances can lead to information that is not captured by intergenerational correlation.

Pages: 29 pages
Date: 2005-11
New Economics Papers: this item is included in nep-hrm, nep-net, nep-soc and nep-ure
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