A Simple Economic Theory of Skill Accumulation and Schooling Decisions

31 Pages Posted: 23 Dec 2014

See all articles by William F. Blankenau

William F. Blankenau

Kansas State University - Department of Economics

Gabriele Camera

Chapman University - Economic Science Institute; University of Bologna - Dept. of Economics

Date Written: December 22, 2014

Abstract

We propose a model of schooling that can account for the observed heterogeneity in workers’ productivity and educational attainment. Identical unskilled agents can get a degree at a cost, but becoming skilled entails an additional unobservable effort cost. Individual labor can then be used as an input in pairwise production matches. Two factors affect students’ desire to build human capital: degrees imperfectly signal productivity, and contract imperfections generate holdup problems. Multiple stationary equilibria exist, some of which are market failures characterized by a largely educated workforce of low average skill. Policy implications are explored.

Keywords: Education Policy, Education Finance, Human Capital, Informational Frictions, Matching, Multiple Equilibria

JEL Classification: D8, I2, J24

Suggested Citation

Blankenau, William F. and Camera, Gabriele, A Simple Economic Theory of Skill Accumulation and Schooling Decisions (December 22, 2014). Available at SSRN: https://ssrn.com/abstract=2541994 or http://dx.doi.org/10.2139/ssrn.2541994

William F. Blankenau

Kansas State University - Department of Economics ( email )

Manhattan, KS 66502-4001
United States

Gabriele Camera (Contact Author)

Chapman University - Economic Science Institute ( email )

Orange, CA 92866
United States

HOME PAGE: http://www1.chapman.edu/~camera/

University of Bologna - Dept. of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

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