Working Paper: CEPR ID: DP2897
Authors: Marc Fleurbaey; Robert Gary-Bobo; Denis Maguain
Abstract: We consider a model of education planning in an economy in which agentsdiffer in their costs of acquiring education. The agents' costparameter, called "talent," is not observed. The Principal is endowed with a fixed sum of money, with which two types of transfer can be made: in cash and in kind. The Principal can finance transfers in kind, called "help," by means of schooling expenditures, which reduce the agent's education cost. The Principal seeks to maximize a social welfare function which is a CES index of utility levels. We study the optimal allocation of individual education effort, schooling expenditures (help), and cash, under self-selection and budget constraints. Assuming first that the set of types is finite, and that help and effort are sufficiently substitutable, we find that individual education investment levels are an increasing function, and help is a decreasing function of talent. Utility levels cannot be equalized because of self-selection constraints. More aversion for inequality unequivocally leads to more inequality of educational achievements, and to more assistance through redistribution. This remains true in the limit, under strictly egalitarian preferences of the Principal. The same qualitative properties hold in the general case of a continuum of types. Bunching at the lower end of the talent scale is a feature of the solution for sufficiently high degrees of inequality aversion.
Keywords: effort; help; inequality aversion; redistribution; talent
JEL Codes: D82; H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| talent (D29) | individual educational investment levels (I26) |
| talent (D29) | amount of help (in-kind transfers) (F35) |
| inequality aversion (D63) | educational achievements of less talented individuals (I24) |
| inequality aversion (D63) | assistance through redistribution (F35) |
| amount of help (in-kind transfers) (F35) | educational levels of less talented individuals (D29) |
| talent (D29) | optimal allocation of public spending on education (H52) |
| inequality aversion (D63) | greater inequality in educational achievements (I24) |