We develop a perfect-foresight overlapping generations model to investigate the effects of cohort size on schooling decisions and cohort-specific welfare measures. A set of sufficient conditions are presented which ensure the existence of an unique sequence of human capital rental rates and schooling choices for any sequence of cohort sizes. We calibrate the partial equilibrium model using data on schooling investments and aggregate wages over the period 1920 through 1980, and use the parameters to assess the magnitude of lifetime cohort wealth and schooling elasticities computed with respect to the entire cohort size sequence. We find that the equilibrium response of schooling to perturbations in the cohort size sequence is small, so that the adverse effects of increases in the size of own and neighboring cohorts on cohort wealth are not significantly migrated by adjustments in schooling investments within our modelling framework.
ASJC Scopus subject areas
- Economics and Econometrics