An adjustment cost model of social mobility

Abstract

The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-pro t purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. AbstractWe analyze herein the e¤ects of the human capital adjustment cost on social mobility. Such an adjustment cost is modeled as a rising marginal cost schedule for augmenting human capital. We use a general human capital technology, which disentangles the adjustment cost from the depreciation cost of the human capital. Missing credit markets prevent individuals from equalizing the initial di¤erences in the human capital. We …nd that a higher adjustment cost for human capital acquisition slows down the social mobility and results in a persistent inequality across generations. On the other hand, a higher rate of human capital depreciation could increase mobility via a positive e¤ect on new investment. The quantitative analysis of our model suggests that the human capital adjustment cost is nontrivial to account for the observed persistence of inequality and social mobility. In addition, we …nd that the government redistribution policy could account for the large observed variation in estimates of social mobility.

Intergenerational Education Mobility in Africa: Has Progress been Inclusive?

“…Able parents have a higher chance of producing to have more able children who can attain higher levels of education without special parental investment. For instance, a child might learn skills through observation without any additional effort from parents (Haveman and Wolfe, 1995;Basu and Getachew, 2015). Nurture pertains to the amount of time and economic investments of parents on a child's human capital accumulation.…”

Capital adjustment cost and inconsistency in income-based dynamic panel models with fixed effects

“…We assume complete depreciation of capital for analytical tractability, without loss of generality. Basu and Getachew (2015) show that depreciation cost has a trivial effect on convergence property. 11.…”

Idiosyncratic and Aggregate Risks, Inequality and Growth

“…In the model, agents are heterogeneous in terms of initial human capital and idiosyncratic productivity. Credit and insurance markets are missing, as in Loury (1981), Banerjee and Newman (1993), Galor and Zeira (1993), Benabou (2000Benabou ( , 2002, Getachew (2010Getachew ( , 2012, Basu and Getachew (2015) and Getachew and Turnovsky (2015). 5 Individual production functions are characterized by inter-generational and intra-generational learning-by-doing externalities, which are the source of long-run growth -in the spirit of Romer (1986) and Lucas (1988).…”

“…The parameter ω may have different interpretations in the literature. Basu and Getachew (), for instance, ascribe it to a convex human capital adjustment cost that determines the curvature of the marginal return to investment, whereas Bandyopdhyay and Tang () use the elasticity term to represent the quality of parental nurturing.…”