Why invest in your neighbor? Social contract on educational investment

Panu Poutvaara and Vesa Kanniainen

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: It may be in the interest of low-ability individuals to subsidize theeducation of high-ability individuals. The sufficient conditions aresurprisingly mild: positive externalities in education andcomplementarity in production between human capital and labor suppliedby the low-ability individuals. However, tax competition and the freemobility of the educated give rise to time-inconsistency and free-ridingproblems which render such a social contract infeasible and result in asuboptimally low investment in education.

Date: 2000
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Published in International Tax and Public Finance 4-5 7(2000): pp. 547-562

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Related works:
Journal Article: Why Invest in Your Neighbor? Social Contract on Educational Investment (2000)
Working Paper: Why to Invest in your Neighbor? Social Contract on Educational Investment (1999)
Working Paper: Why to Invest in your Neighbor? Social Contract on Educational Investment (1999)
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