The Nature of Credit Constraints and Human Capital / Lance J. Lochner, Alexander Monge-Naranjo.

Format:

Book

Author/Creator:

Lochner, Lance J.

Contributor:

National Bureau of Economic Research.

Monge-Naranjo, Alexander.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13912.

NBER working paper series no. w13912

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

This paper studies the nature and impact of credit constraints in the market for human capital. We derive endogenous constraints from the design of government student loan programs and from the limited repayment incentives in private lending markets. These constraints imply cross-sectional patterns for schooling, ability, and family income that are consistent with U.S. data. This contrasts with the standard exogenous constraint model, which predicts a counterfactual negative ability -- schooling relationship for low-income youth. We show that the rising empirical importance of familial wealth and income in determining college attendance (Belley and Lochner 2007) is consistent with increasingly binding credit constraints in the face of rising tuition costs and returns to schooling. Our framework also explains the recent increase in private credit for college as a market response to the rising returns to school.

Notes:

Print version record

April 2008.