Bequests or Education

Julio Dávila

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: Whether parents choose to endow their offspring with bequests, or with human capital -the effectiveness with which they do so surely depending on their own human capital- or with both, markets cannot deliver, under laissez-faire, the egalitarian planner's mix of bequests and education that maximises the representative agent's welfare. Specifically, at the steady state and for a close enough to linear human the market wage per efficient unit of labor is too high compared to the marginal productivity of labor resulting from the steady state the planner would choose, so that the market human capital is too low. In other words, the market misses the planner's allocation by leading households to transfer to their offspring more in bequests and less in education than would be advisable. This is so even if parents internalise in their utility the value of their bequests and educational investment for their children. The problem is not, therefore, one of an externality not internalised, but rather the impossibility of replicating in a decentralised way,under laissez-faire, the kind of intergenerational coordination that a planner constrained only by the feasibility of the allocation of resources can achieve. The planner's allocation can, nonetheless, be decentralised through the market by means of subsidising labor income at the expense of a lump-sum tax on saving returns

Keywords: human capital; bequests; externalities; overlapping generations (search for similar items in EconPapers)
JEL-codes: D64 H2 I25 O4 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2020-05
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
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Downloads: (external link)
http://mse.univ-paris1.fr/pub/mse/CES2020/20007.pdf (application/pdf)
https://halshs.archives-ouvertes.fr/halshs-02899993

Related works:
Journal Article: Bequests or education (2023)
Working Paper: Bequests or education (2020)
Working Paper: Bequests or Education (2020)
Working Paper: Bequests or Education (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:20007

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