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Human-capital investments as a commitment device

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  • Jin, Lawrence
  • Kang, Minwook

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.

Suggested Citation

  • Jin, Lawrence & Kang, Minwook, 2023. "Human-capital investments as a commitment device," Economic Modelling, Elsevier, vol. 126(C).
    • Handle: RePEc:eee:ecmode:v:126:y:2023:i:c:s0264999323002110
    DOI: 10.1016/j.econmod.2023.106399
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    More about this item

    Keywords

    Commitment device; Commitment incentive; Human capital; Hyperbolic discounting; Present bias; Self-control problem;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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