Using the Two-Period Model to Understand Investment in Human Capital

M. Daniele Paserman

National Tax Journal, 2017, vol. 70, issue 1, 185-204

Abstract: In many textbooks, the decision to invest in human capital is presented in terms of the present discounted value of the lifetime stream of costs and benefits associated with the investment. I argue that this approach, while delivering some useful insights, also conflates subjective discount rates and market interest rates, obfuscates the role of credit market imperfections, and makes difficult the analysis of policy interventions and the effects of external shocks on human capital investment. I show instead how a simple two-period model can deliver the main insights about investment in human capital and is flexible enough to be used to model a wide variety of policy interventions.

Date: 2017
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.17310/ntj.2017.1.08 (text/html)
Access is restricted to subscribers and members of the National Tax Association.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ntj:journl:v:70:y:2017:i:1:p:185-204

Access Statistics for this article

National Tax Journal is currently edited by Stacy Dickert-Conlin and William M. Gentry

More articles in National Tax Journal from National Tax Association, National Tax Journal Contact information at EDIRC.
Bibliographic data for series maintained by The University of Chicago Press ().