2of19 - Human Capital, and Intergenerational Mobility - The basic model (1of2)





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Published on Jan 6, 2011

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This the second 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.


Professor Becker models the investment in the human capital that parents make on behalf of their children. He analytically develops a simple one-overlapping generation rational choice model in which the parents can only spend income on their own consumption goods or in the human capital investment of their children. He then derives the comparative statics predictions that are implied. These results set up a discussion about intergenerational income mobility and regression to the mean in this context. Finally, he begins to discuss capital markets and their imperfections.

Throughout the discussion, Becker assumes the following: a single kind of human capital investment, one-parent household (i.e. no marriage or unisex model), and a one-child household. The parameters in this model are the altruism and the income of the parents, and the parameter that converts the human capital of the kids into earnings. Common microeconomic theory assumptions about utility and production functions are settled.

Key concepts: altruism, capital markets, capital markets imperfections, consumption goods, intergenerational income mobility, investment in human capital, one-overlapping generation rational choice model.

Main discussions:
• Lecture 2, (06:00-09:25): Professor Becker provides context for the model he develops.
• Lecture 2, (14:00-15:10, and 17:10-19:40): Professor Becker explains the meaning of parental altruism in his model.
• Lecture 2, (23:50-26:00): Professor Becker discusses why diminishing marginal returns of human capital investment is a reasonable assumption.
• Lecture 2, (29:00-30:50): Professor Becker explains how the future earnings of the kids are determined and the role played by the parameters in the function that converts a child's human capital into earnings.
• Lecture 2, (01:01:50-01:06:50): Professor Becker starts the discussion about
intergenerational income mobility and regression to the mean in this context.
• Lecture 2, (01:12:20-01:14:10): Professor Becker stresses the difference between intergenerational income mobility and income equality.
• Lecture 2, (02:15:50-01:02:20): Professor Becker discusses capital markets and its imperfections.

Main quotes:
• "(...) if the world was full of selfish parents we can close up this part of the analysis and go home".

• Chapter 1: Single-Person Households in Becker Gary. A Treatise on the Family. Enlarged ed. pp. 20-30.
• Salvador Navarro Lozano. Notes on Gary Becker's Human Capital and the Economy. pp. 7-11.


Lecture Notes:

Reading List:

Video Annotations:


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