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Human capital policies in a static, two-sector economy with imperfect markets

Mendolicchio, Concetta and Paolini, Dimitri and Pietra, Tito (2008) Human capital policies in a static, two-sector economy with imperfect markets. Cagliari, CRENoS. p. 43 (Working Papers CRENoS, 2008, 07). Working Paper.

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The paper studies a two-sector economy with investments in human and physical capital and imperfect labor markets. Workers and firms endogenously select (paying a fixed cost) the sector they are active in, and choose the amount of their investments. The economy is characterized by pecuniary externalities. Given the partition of the agents among the two sectors, at equilibrium there is underinvestment in both human and physical capital, as in Acemoglu (1996). A second externality is induced by the self-selection of the agents in the two sectors. When the difference between total factor productivities (TFP) is sufficiently large, subsidies to investments in education in the low TFP sector and fixed taxes increasing the cost to access the high productivity sector increase expected total surplus, while subsidies to investments in the high TFP sector can actually reduce it. To the contrary, subsidies to the amount of investments in human capital in the high TFP sector may have a positive effect on social welfare when the TFPs are sufficiently close.

Item Type:Working Paper
ID Code:41
Uncontrolled Keywords:Human capital, efficiency, human capital policies
Subjects:Area 13 - Scienze economiche e statistiche > SECS-P/01 Economia politica
Divisions:002 Altri enti e centri di ricerca del Nord Sardegna > CRENoS-Centro Ricerche Economiche Nord Sud, Università di Cagliari e Università di Sassari
001 Università di Sassari > 01 Dipartimenti > Economia, impresa, regolamentazione
Publisher Policy:Depositato per gentile concessione del CRENoS
Deposited On:18 Aug 2009 10:01

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