Constrained Efficiency in a Human Capital Model
American Economic Journal: Macroeconomics, 2018, vol. 10, issue 3, 179-214
This paper investigates whether capital and human capital are over-accumulated in an incomplete market economy. As in Davila et al. (2012), whether capital is over-accumulated depends on how the pecuniary externalities affect insurance and redistribution. In a human capital economy, however, not only capital but also human capital generates externalities and an additional channel arises that has implications for the overaccumulation (under-accumulation) of capital (human capital). The income sources of the poor and the correlation between wealth and human capital are crucial for the implication of pecuniary externalities. Realistically calibrated models exhibit under-accumulation (overaccumulation) of capital (human capital).
JEL-codes: D52 D62 I26 J22 J24 J31 (search for similar items in EconPapers)
Note: DOI: 10.1257/mac.20160405
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