Thursday, July 16

Monetizing Emma

Someone has taken seriously the idea of securitizing investments in human capital. Gary Becker likes to explain that, were it not for the difficulty/immorality in collecting on the contracts, education and therefore earnings would be more equitably and efficiently allocated if there were a market for investments in human capital. Smart kids would borrow money against future earnings and be obligated to pay it back.

The returns to education are very high (Grossman, Becker, Murphy estimate an 18% return to an additional year of school for the marginal american highschool student (marginal here meaning one who has the lowest return of those staying in school---or the highest of those dropping out)). Even poor parents are better off investing in their children than in a savings account--assuming that they believe their children will 'repay' that debt. But they often can't borrow money to invest in their kids.

Why don't rich people/hedge funds/etc invest in the education of poor kids?

I am glad to see that Monetizing Emma has taken on the question.

1 comment:

  1. "difficulty/immorality"? That implies that they are both at the same level, or that they are interchangeable...