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LEARNING ABOUT EDUCATION
Author(s) -
Emerson Patrick M.,
McGough Bruce
Publication year - 2018
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12487
Subject(s) - economics , human capital , investment (military) , returns to scale , rate of return , empirical evidence , labour economics , monetary economics , microeconomics , finance , production (economics) , economic growth , philosophy , epistemology , politics , political science , law
Limited human capital investment is a common characteristic of low‐income countries despite the fact that estimated returns to educational investment in low‐income countries are generally higher than those in high‐income countries. Empirical evidence suggests that income and credit constraints can only account for a part of this underinvestment. Recent experimental evidence shows that families' misperceptions about the returns to education play a role in their low‐investment levels. This paper builds a heterogeneous‐agent model of human capital and growth that incorporates an adaptive learning mechanism to capture the way agents form perceptions about returns to education. We find natural conditions guaranteeing existence of stable equilibria. Along transition paths, agents' misperceptions about returns to education depress realized returns, which serves to reenforce and perpetuate low human‐capital investment. If human capital investments have both private and public returns, we find multiple stable equilibria, including those which are characterized by low investment and low returns. ( JEL D83, O10, I25)