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Discussion Paper Details

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Title: The Role of Rents to Human Capital in Economic Development

Author(s): Gilles Saint-Paul

Publication Date: March 1994

Keyword(s): Growth, Human Capital, Inequality, Overlapping Generations, Public Education, Savings and Threshold Effects

Programme Area(s): International Macroeconomics

Abstract: In an overlapping generations model, rents to human capital play a key role in increasing savings. In the absence of such rents, the return to human capital is entirely appropriated by the old and accumulation is entirely determined by the income to fixed factors. If rents are introduced by setting a ceiling on human capital accumulation, the economy may achieve a larger income level, even though the ceiling reduces the economy's feasibility set. Threshold effects and multiple steady states arise because rents to human capital are self perpetuating. Inequality in abilities may be good for growth because it allows inframarginal workers to earn rents on their human capital, which then increase savings. Public education is also good for growth because it gives the young property rights over their own human capital, which are thus equivalent to rents.

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Bibliographic Reference

Saint-Paul, G. 1994. 'The Role of Rents to Human Capital in Economic Development'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=923