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Public information, education and welfare

Public information, education and welfare We study investments in education made by a continuum of individuals under imperfect information on returns. In the model, the wage accruing to single units of human capital is bargained in the labour market. In addition, this wage depends positively on a stochastic fundamental and, negatively, on the aggregate supply of human capital. At the time of investment, any agent observes a public and a private signal of the fundamental. We show that an increase in the precision of the public signal has an ambiguous impact on the expected social welfare. On the one hand, social welfare improves as schooling decisions become closer to those decisions that would be made under perfect information. On the other hand, social welfare deteriorates as externalities and coordination failures become more severe. The key result of our analysis is that an increase in the quality of public information turns out to be welfare improving, unless the distortions on the labour market are particularly strong. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png "Economia Politica" Springer Journals

Public information, education and welfare

Femminis, Gianluca; Piccirilli, Giulio
"Economia Politica" , Volume 37 (1) – Apr 17, 2020
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References (25)

Publisher
Springer Journals
Copyright
Copyright © Springer Nature Switzerland AG 2019
Subject
Economics; Economic Policy; International Political Economy
ISSN
1120-2890
eISSN
1973-820X
DOI
10.1007/s40888-019-00164-6
Publisher site
See Article on Publisher Site

Abstract

We study investments in education made by a continuum of individuals under imperfect information on returns. In the model, the wage accruing to single units of human capital is bargained in the labour market. In addition, this wage depends positively on a stochastic fundamental and, negatively, on the aggregate supply of human capital. At the time of investment, any agent observes a public and a private signal of the fundamental. We show that an increase in the precision of the public signal has an ambiguous impact on the expected social welfare. On the one hand, social welfare improves as schooling decisions become closer to those decisions that would be made under perfect information. On the other hand, social welfare deteriorates as externalities and coordination failures become more severe. The key result of our analysis is that an increase in the quality of public information turns out to be welfare improving, unless the distortions on the labour market are particularly strong.

Journal

"Economia Politica" – Springer Journals

Published: Apr 17, 2020

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