Educational Signaling, Credit Constraints and Inequality Dynamics

Marcello D'Amato and Dilip Mookherjee

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We present a dynamic OLG model of educational signaling, inequality and mobility with missing credit markets. Agents are characterized by two sources of unobserved heterogeneity: ability and parental income, consistent with empirical evidence on returns to schooling. Both quantity and quality of human capital evolve endogenously. The model generates a Kuznets inverted-U pattern in skill premia similar to historical US and UK experience. In the first (resp. later) phase the skill premium rises (falls), social returns to education exceed (falls below) private returns: under-investment owing to financial imperfections dominate (are dominated by) over-investment owing to signaling distortions. There always exist Pareto-improving policy interventions reallocating education between poor and rich children. JEL Classification:

Date: 2012-04-11
New Economics Papers: this item is included in nep-dge, nep-edu, nep-lab and nep-ltv
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Citations: View citations in EconPapers (3)

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Working Paper: Educational Signaling, Credit Constraints and Inequality Dynamics (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:311

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