Education Choices, Longevity and Optimal Policy in a Ben-Porath Economy

Yukihiro Nishimura (1) , Pierre Pestieau (2, 3, 4, 5) , Grégory Ponthière (6, 4, 5)

1 Osaka University [Osaka]
2 CEPR - Center for Economic Policy Research
3 CORE - Center of Operation Research and Econometrics [Louvain]
4 PSE - Paris-Jourdan Sciences Economiques
5 PSE - Paris School of Economics
6 ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique

We develop a 3-period overlapping generations (OLG) model where individuals borrow at the young age to finance their education. Education does not only increase future wages, but, also, raises the duration of life, which, in turn, affects education choices, in line with Ben Porath (1967). We first identify conditions that guarantee the existence of a stationary equilibrium with perfect foresight. Then, we reexamine the conditions under which the Ben-Porath effect prevails, and emphasize the impact of human capital decay and preferences. We compare the laissez-faire with the social optimum, and show that the latter can be decentralized provided the laissez-faire capital stock corresponds to the one satisfying the modified Golden Rule. Finally, we introduce intracohort heterogeneity in the learning ability, and we show that, under asymmetric information, the second-best optimal non-linear tax scheme involves a downward distortion in the level of education of less able types, which, quite paradoxically, would reinforce the longevity gap in comparison with the laissez-faire.

Mots clés: Education; Life expectancy; OLG models; Optimal policy

Domaines: Economies et finances

Yukihiro Nishimura, Pierre Pestieau, Grégory Ponthière. Education Choices, Longevity and Optimal Policy in a Ben-Porath Economy. 2015. ⟨halshs-01230932⟩