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2019 | OriginalPaper | Chapter

2. Optimal Life-Cycle Education Decisions of Atomistic Individuals

Authors : Bernhard Skritek, Jesus Crespo Cuaresma, Arkadii V. Kryazhimskii, Klaus Prettner, Alexia Prskawetz, Elena Rovenskaya

Published in: Human Capital and Economic Growth

Publisher: Springer International Publishing

Abstract

We analyze the optimal life-cycle education decision of a single atomistic individual and show that the standard result of part-time education and part-time work throughout the life-cycle holds only under very special and unrealistic assumptions. Once these assumptions are relaxed, different education strategies become optimal. These range from switching back and forth between work and education (educational leave) to full-time education at the beginning of life and full-time work when older (classical schooling). The resulting strategies for investing in education are better aligned with the observable pattern of educational investments over the life cycle. The particular path chosen by individuals then depends on other aspects, e.g., on the individual’s lifetime horizon or on nonlinearities in human capital accumulation with respect to time invested in education.

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In Romer (1990), human capital is the central determinant of economic growth because it is the crucial input in the production of new knowledge. This idea has been formalized and further developed by Funke and Strulik (2000), Dalgaard and Kreiner (2001), Strulik (2005), Bucci (2008), Strulik et al. (2013), Prettner (2014), and Prettner and Strulik (2016). For other beneficial effects of education see Lee and Mason (2010), Venti (2015), and Mason et al. (2016).

In the model, the feasibility of such a decomposition rests on the assumptions of the lack of disutility of work beyond the opportunity costs of investing in human capital and that capital markets are perfectly competitive.

Note that we assume in Theorem 2.1 that a balanced growth path with positive human capital growth exists and obtain as a result that also the control u ^∗(t) ≡ 1 for all t ∈ [0, ∞) without human capital growth is optimal. This is, at first glance, a contradiction. But the assumption does not rule out that there exists a balanced growth path without human capital growth. From a mathematical point of view, the theorem could be reformulated to start with “If an optimal singular control exists” but we chose our formulation as economically more intuitive.

The derivation of Eq. (2.22) can be found in Appendix 2.

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Title: Optimal Life-Cycle Education Decisions of Atomistic Individuals
Authors: Bernhard Skritek
Jesus Crespo Cuaresma
Arkadii V. Kryazhimskii
Klaus Prettner
Alexia Prskawetz
Elena Rovenskaya
Publisher: Springer International Publishing
Book: Human Capital and Economic Growth
Print ISBN: 978-3-030-21598-9

Electronic ISBN: 978-3-030-21599-6

Copyright Year: 2019
DOI: https://doi.org/10.1007/978-3-030-21599-6_2