Human-capital investments as a commitment device

Lawrence Jin, Minwook Kang

Research output: Contribution to journalArticlepeer-review

Abstract

This paper shows that a person with a self-control problem can have the incentive to use human-capital investment as a commitment tool to curb future myopic human-capital decisions. This commitment incentive arises from the property of increasing productivity from human-capital accumulation. Higher human-capital investments in the present increase the return on future investments in human capital, which helps encourage the future self to invest more. Although time inconsistency has often been used to explain why people underinvest in human capital, such as education and health, our findings suggest that time inconsistency can also explain why some people make extremely large human-capital investments.

Original languageEnglish
Article number106399
JournalEconomic Modelling
Volume126
DOIs
Publication statusPublished - 2023 Sept

Bibliographical note

Publisher Copyright:
© 2023

Keywords

  • Commitment device
  • Commitment incentive
  • Human capital
  • Hyperbolic discounting
  • Present bias
  • Self-control problem

ASJC Scopus subject areas

  • Economics and Econometrics

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