Competition, human capital and income inequality with limited commitment

Ramon Marimon and Vincenzo Quadrini

Journal of Economic Theory, 2011, vol. 146, issue 3, 976-1008

Abstract: We develop a dynamic model with two-sided limited commitment to study how barriers to competition, such as restrictions to business start-up and non-competitive covenants, affect the incentive to accumulate human capital. When contracts are not enforceable, high barriers lower the outside value of 'skilled workers' and reduce the incentive to accumulate human capital. In contrast, low barriers can result in over-accumulation of human capital. This can be socially optimal if there are positive spillovers. A calibration exercise shows that this mechanism can account for a sizable portion of cross-country income inequality.

Keywords: Contract; enforcement; Barriers; to; competition; Human; capital; Economic; growth (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (18)

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Working Paper: Competition, Human Capital and Income Inequality with Limited Commitment (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:146:y:2011:i:3:p:976-1008

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