Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76373
Authors: 
Eckwert, Bernhard
Zilcha, Itzhak
Year of Publication: 
2003
Series/Report no.: 
CESifo Working Paper 969
Abstract: 
We consider an OLG economy with endogenous investment in human capital. Heterogeneity in individual human capital levels is generated by random innate ability. The production of human capital depends on each individual's investment in education. This investment decision is taken only after observing a signal which is correlated to his/her true ability, and which is used for updating beliefs. Thus, a better information system affects the distribution of human capital in each generation. Assuming separable and identical preferences for all individuals, we derive the following results in equilibrium: (a) If the relative measure of risk aversion is less (more) than 1 then more information raises (reduces) income inequality. (b) When a risk sharing market is available better information results in higher inequality regardsless of the measure risk aversion.
Subjects: 
information system
income inequality
risk sharing markets
Document Type: 
Working Paper

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