Sector-Specific Externalities and Status Preferences in the Uzawa-Lucas Model
12 Pages Posted: 6 Aug 2008
Date Written: 2006-09-07
This paper shows that introducing preferences for social status based on human capital holdings modifies the finding of Gómez (2004) that sector-specific externalities associated with human capital in the goods sector do not violate the optimality of the competitive economy in the Uzawa-Lucas model. The effect of an increase in the degree of sector-specific externalities is qualitatively the same as that of an increase in the strength of the desire for status. Hence, paradoxically, a greater degree of sector-specific externalities makes human capital accumulation more excessive from the social point of view.
JEL Classification: E62, H21, O41
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