Inequality in Human Capital and Endogenous Credit Constraints

67 Pages Posted: 3 Apr 2016 Last revised: 24 Sep 2018

See all articles by Rong Hai

Rong Hai

University of Miami - School of Business Administration - Department of Economics

James J. Heckman

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); American Bar Foundation; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: January 11, 2017

Abstract

This paper studies the determinants of inequality in human capital with particular emphasis on the role of the credit constraints. We develop and estimate a model in which individuals are subject to uninsured human capital risks and invest in education, acquire work experience, accumulate assets, and smooth consumption. Agents can borrow up to a model-determined limit, which we explicitly derive from a private lending market natural borrowing limit and government student loan programs. We also quantify the effects of cognitive ability, noncognitive ability, parental education, and parental wealth on educational attainment, work experience, and consumption. We conduct counterfactual experiments with respect to tuition subsidy and enhanced student loan limits and evaluate their effects on educational attainment and inequality.

Keywords: Human Capital, Credit Constraints, Education, Wealth

JEL Classification: I2, J2

Suggested Citation

Hai, Rong and Heckman, James J., Inequality in Human Capital and Endogenous Credit Constraints (January 11, 2017). Available at SSRN: https://ssrn.com/abstract=2757881 or http://dx.doi.org/10.2139/ssrn.2757881

Rong Hai (Contact Author)

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

HOME PAGE: http://https://sites.google.com/site/ronghaiecon/

James J. Heckman

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-0634 (Phone)
773-702-8490 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

American Bar Foundation

750 N. Lake Shore Drive
Chicago, IL 60611
United States

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
18
Abstract Views
849
PlumX Metrics