Efficient Ways to Finance Human Capital Investments

Espen R. Moen

Economica, 1998, vol. 65, issue 260, pages 491-505

Abstract: Standard theory predicts that, if wages are determined by bargaining, workers underinvest in human capital, as they bear all the investment costs yet receive only a share less than one of the return. The author shows that this result depends on the way the investments are financed. He introduces contingent loans, which do not accumulate interest if the borrower is unemployed. When the investments are financed by such loans, the interest payments are regarded as a (negative) part of the surplus the agents bargain over. As a result, a worker pays the same share of the interest as he receives of the return. Copyright 1998 by The London School of Economics and Political Science

Date: 1998
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