Credit Market Development and Human Capital Accumulation

Wai-Hong Ho ()

MPRA Paper from University Library of Munich, Germany

Abstract: In a two period overlapping generations economy with asymmetric information, we investigate the interaction between credit market development and human capital accumulation. As is typical, young borrowers supply their endowed unit of labor time to earn wage income which is used as internal funds. In contrast to conventional setups, young lenders distribute theirs between acquiring education and working for earnings. Through identifying the risk types of borrowers by a costly screening technology, a self selection equilibrium is achieved. We find that, at steady state, lenders will allocate more time to acquire education if the cost of screening borrowers falls. Furthermore, a longer duration of lenders' schooling time suppresses borrowers' incentive to cheat thereby enabling lenders to screen less frequently. These results suggest the possibility of a mutual beneficial interplay between credit market development and human capital accumulation. At last, our comparative static analysis show that improvements on borrowers' investment technology promote human capital accumulation but that on lenders' does the opposite.

Keywords: Asymmetric information; Human capital (search for similar items in EconPapers)
JEL-codes: D82 J24 O16 (search for similar items in EconPapers)
Date: 2008-11-04
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/16760/1/MPRA_paper_16760.pdf original version (application/pdf)

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:pra:mprapa:16760

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().