Educational Policy in a Credit Constrained Economy with Skill Heterogeneity

26 Pages Posted: 13 Jul 2003

See all articles by John Fender

John Fender

University of Birmingham - Department of Economics

Ping Wang

Washington University in St. Louis - Department of Economics; National Bureau of Economic Research (NBER)

Abstract

An overlapping-generations model where agents choose whether to become educated when young is presented. Education enhances productivity, but needs to be financed by borrowing. Because of the possibility of default, lenders may ration credit. We characterize the steady-state equilibrium with and without credit constraints and show that credit constraints are associated with lower education and a lower real interest rate. We then study the role of public policy in remedying the inefficiency which occurs with credit market imperfections and examine whether public education can improve on the constrained equilibrium.

Suggested Citation

Fender, John and Wang, Ping, Educational Policy in a Credit Constrained Economy with Skill Heterogeneity. Available at SSRN: https://ssrn.com/abstract=422985

John Fender (Contact Author)

University of Birmingham - Department of Economics ( email )

Economics Department
Birmingham, B15 2TT
United Kingdom

Ping Wang

Washington University in St. Louis - Department of Economics ( email )

One Brookings Drive
St. Louis, MO 63130
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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