Bequests or education
Dávila J.
May 2023Springer Science and Business Media Deutschland GmbH
Economic Theory
2023#75Issue 41039 - 1069 pp.
This paper shows that, when parents can endow their offspring with bequests and human capital, markets cannot deliver (generically under laissez-faire) the planner’s choice, if educational investments affect total factor productivity—as empirical evidence establishes. Moreover, for a human capital production function close enough to affine (around market and planner steady states with similar fertilities), the market steady state wage is higher than the marginal productivity of labor at the planner’s steady state, so that the market steady state human capital is too low. In other words, the market misses the planner’s allocation by leading households to transfer to their offspring more in bequests and less in education than would be optimal. These results obtain in spite of parents perfectly internalising (1) the value for their children of their bequests and educational investment, but not (2) the externality on total factor productivity—nor hence on factor prices. The planner’s allocation can, nonetheless, be decentralised subsidising labor income through a lump-sum tax on saving returns that reduces bequests. An estimate of the subsidy needed—for standard functional forms and parameter values estimated from US data—suggests a sizeable market inefficiency.
Bequests , Externalities , Human capital , Overlapping generations , Total factor productivity
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Department of Economics, School of Sciences and Humanities, Nazarbayev University, Nur-Sultan, Kazakhstan
Department of Economics
10 лет помогаем публиковать статьи Международный издатель
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