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Bequests or Education

Author

Listed:
  • Julio Dávila

    (Centre d'Economie de la Sorbonne
    https://centredeconomiesorbonne.cnrs.fr)

Abstract
Whether parents choose to endow their offspring with bequests, or with human capital -the effectiveness with which they do so surely depending on their own human capital- or with both, markets cannot deliver, under laissez-faire, the egalitarian planner's mix of bequests and education that maximises the representative agent's welfare. Specifically, at the steady state and for a close enough to linear human the market wage per efficient unit of labor is too high compared to the marginal productivity of labor resulting from the steady state the planner would choose, so that the market human capital is too low. In other words, the market misses the planner's allocation by leading households to transfer to their offspring more in bequests and less in education than would be advisable. This is so even if parents internalise in their utility the value of their bequests and educational investment for their children. The problem is not, therefore, one of an externality not internalised, but rather the impossibility of replicating in a decentralised way,under laissez-faire, the kind of intergenerational coordination that a planner constrained only by the feasibility of the allocation of resources can achieve. The planner's allocation can, nonetheless, be decentralised through the market by means of subsidising labor income at the expense of a lump-sum tax on saving returns

Suggested Citation

  • Julio Dávila, 2020. "Bequests or Education," Documents de travail du Centre d'Economie de la Sorbonne 20007, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:20007
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    File URL: http://mse.univ-paris1.fr/pub/mse/CES2020/20007.pdf
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    File URL: https://halshs.archives-ouvertes.fr/halshs-02899993
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    References listed on IDEAS

    as
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    Cited by:

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    More about this item

    Keywords

    human capital; bequests; externalities; overlapping generations;
    All these keywords.

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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