Endogenous Fluctuations in the Demand for Education

32 Pages Posted: 13 Jan 2003

See all articles by Michael Neugart

Michael Neugart

Technical University of Darmstadt

Jan Tuinstra

University of Amsterdam - Department of Quantitative Economics (KE); Tinbergen Institute

Date Written: November 2002

Abstract

Enrollment rates to higher education reveal quite large variation over time which cannot be explained by productivity shocks alone. We develop a human capital investment model in an overlapping generations framework that features endogenous fluctuations in the demand for education. Agents are heterogeneous in their beliefs about future wage differentials. An evolutionary competition between the heterogeneous beliefs determines the fraction of the newborn generation having a certain belief. Costly access to information on the returns to education induces agents to use potentially destabilizing backward looking prediction rules. Only if previous generations experience regret about their human capital investment decisions, agents will choose a more sophisticated prediction rule that dampens the cycle. Access to information becomes key for stable flows to higher education.

Keywords: Demand for Education, Expectations, Human Capital Investment, Endogenous Fluctuations, Evolutionary Dynamics, Bifurcation Analysis

JEL Classification: C60, E32, J24

Suggested Citation

Neugart, Michael and Tuinstra, Jan, Endogenous Fluctuations in the Demand for Education (November 2002). Available at SSRN: https://ssrn.com/abstract=364721 or http://dx.doi.org/10.2139/ssrn.364721

Michael Neugart (Contact Author)

Technical University of Darmstadt ( email )

Hochschulstraße 1
Darmstadt, 64289
Germany

HOME PAGE: http://www.vwl3.wi.tu-darmstadt.de

Jan Tuinstra

University of Amsterdam - Department of Quantitative Economics (KE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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