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6of19 - Human Capital, and Intergenerational Mobility - Bequests and other topics of the household

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Published on Jan 7, 2011

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GARY BECKER

This the sixth 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 extends the analysis for two kids in the same framework that he works with in the previous lectures. He investigates what happens when two kids have the same ability, what happens when the two kids different abilities, what happens when the parents are more altruistic with one kid than with the other. He addresses the problem in both the perfect and the imperfect capital markets contexts.

Then, Professor Becker addresses the problem of uncertainty in the ability distribution of the kids: he explains how this uncertainty influences the parent's decision to invest in their child's human capital. He develops this model under an expected utility framework.

Afterwards, he returns to the single child model. Becker allows the possibility that parents can invest in other capital for their child in addition to human capital. He does not specify what kind of capital. He just introduces another kind of capital that can be an alternative for parental expenditures. Therefore, the richness of the kids, in this context, is not just determined by the human capital invested in them but also by the capital bequest that they receive in their adulthood.

Key concepts: bequests, expected utility, social planner, uncertainty, efficiency-equity trade-off, physical capital, rate of return.

Main discussions:
• Lecture 6, (04:25-5:20): Professor Becker compares the efficiency-equity trade-off that parents carry on when the abilities of their children are different with that the government faces when implementing public policy and choosing taxes for citizens.
• Lecture 6, (43:25, 44:45): Professor Becker continues the previous discussion. • Lecture 6, (01:14:05-01:16:40): Professor Becker illustrates graphically the decision between parental investment in human capital and parental investment in physical capital and the returns received by both of these decisions.

Main quotes:
• "Parents make compromises when investing in their differently abled children... they face a trade-off as the government does when trading-off between taxing people [in order to achieve equity] and the dead-weight loss that results".

References:
• Salvador Navarro Lozano. Notes on Gary Becker's Human Capital and the Economy. pp. 14-15, 16-18.
• Chapter 8: Altruism in the Family in Becker Gary. A Treatise on the Family. Enlarged ed. pp. 277-306.

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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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