Human-capital investments as a commitment device

Lawrence Jin and Minwook Kang

Economic Modelling, 2023, vol. 126, issue C

Abstract: This paper shows that a person with a self-control problem can have the incentive to use human-capital investment as a commitment tool to curb future myopic human-capital decisions. This commitment incentive arises from the property of increasing productivity from human-capital accumulation. Higher human-capital investments in the present increase the return on future investments in human capital, which helps encourage the future self to invest more. Although time inconsistency has often been used to explain why people underinvest in human capital, such as education and health, our findings suggest that time inconsistency can also explain why some people make extremely large human-capital investments.

Keywords: Commitment device; Commitment incentive; Human capital; Hyperbolic discounting; Present bias; Self-control problem (search for similar items in EconPapers)
JEL-codes: D02 E24 J24 O15 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:126:y:2023:i:c:s0264999323002110

DOI: 10.1016/j.econmod.2023.106399

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