The role of rents to human capital in economic development

Gilles Saint-Paul

Research output: Contribution to journalArticlepeer-review

Abstract

We study the role of rents to human capital in economic development. 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, thus being equivalent to rents.

Original languageEnglish (US)
Pages (from-to)229-249
Number of pages21
JournalJournal of Development Economics
Volume53
Issue number2
DOIs
StatePublished - Aug 1997

Keywords

  • Growth
  • Human capital
  • Inequality
  • Overlapping generations
  • Public education
  • Savings
  • Threshold effects

ASJC Scopus subject areas

  • Development
  • Economics and Econometrics

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