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7of19 - Human Capital, and Intergenerational Mobility - Overlapping generations model

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Uploaded on Feb 11, 2011

GARY BECKER

This the seventh lecture in the "Lectures on Human Capital" series by Gary Becker. This series of lectures recorded during the Spring of 2010 are from ECON 343 - Human Capital, a class taught every year by Gary Becker at the University of Chicago. In this class, Becker expounds upon the theory of Human Capital that he helped create and for which he won the Nobel Prize. Please see attached lecture notes, video annotations, and reading list for more information.

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Professor Becker introduces an extension of the model that allows for two overlapping generations. In this model, parents choose their consumption of goods in two periods, their choice of human capital investment for their children, their choice of investment in physical capital, and the bequest that they give to their children when their reach adulthood.

As in previous lectures, Becker uses a rational choice model with the aforementioned choice variables. However, in this case the parents have two budget constraints: one for each of the overlapping periods. He explains the connection between the choice variables in each of the overlapping periods and describes technically and intuitively the characteristics of the model. The income of the kids when they become adults, in this case, is determined by the human capital investment made in them and by the bequest that parents give them when they become adults.

The consequences for intergenerational income mobility caused by the bequest left by parents do not appear in class but they are discussed in the suggested references.

Finally, Professor Becker develops the preference transmission model that is discussed in his Nobel Prize Lecture. This model is an extension to the previous model in which parents are able to invest in "guilt (preference) transmission" so that children will be guilted into supporting their parents when they are older.

Key concepts: bequest, consumption goods, degree of altruism, parental income, lifecycle discount factor, preference transmission, guilt.

Main discussions:
• Lecture 7, (24:35-36:00): Professor Becker explains the context of the two overlapping generations model.
• Lecture 7, (53:15-55:00): Professor Becker discusses the welfare reasons and consequences of the fact that parents cannot leave debt to their children.
• Lecture 7, (57:40-01:16:15) and Lecture 7.4 (01:16:10-01:19:10): Professor Becker develops the preference transmission model that exposed in his Nobel Prize Lecture.

Main quotes:
• "(...) children's guilt towards their parents... they call it love."

References:
• Salvador Navarro Lozano. Notes on Gary Becker's Human Capital and the Economy. pp. 14-15, 30-31.
• Chapter 7: Inequality and Intergenerational Mobility in Becker Gary. A Treatise on the Family. Enlarged ed. pp. 201-237.
• Supplement to Chapter 7: The Rise and Fall of Families in Becker Gary. A Treatise on the Family. Enlarged ed. pp. 238-276.
• Gary Becker. 1992. Nobel Prize Lecture: The Economic Way of Looking at Life. http://home.uchicago.edu/~gbecker/Nob...

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Lecture Notes:
https://mindonline.uchicago.edu/media...

Reading List:
https://mindonline.uchicago.edu/media...

Video Annotations:

https://mindonline.uchicago.edu/media...

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