Why to Invest in Your Neighbor? Social Contract on Educational Investment
Posted: 18 Jun 2001
Date Written: November 1999
Abstract
It may be in the interest of low-ability individuals to subsidize the education of high-ability individuals. Sufficient conditions are surprisingly mild: positive externalities in education and complementarity in production between human capital and labor supllied by the low-ability individuals. However, tax competition and the free mobility of the educated give rise to time-inconsistency and free-riding problems which render such a social contract infeasible and result in a subotimally low investment in education.
Keywords: Externalities in education, complementarity, social contract, tax competition
JEL Classification: H2, H52, I21, J24
Suggested Citation: Suggested Citation
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CESifo (Center for Economic Studies and Ifo Institute)
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Munich, DE-81679
Germany
IZA Institute of Labor Economics
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