PARENTAL CHOICE OF HUMAN-CAPITAL INVESTMENT

In this paper we present a model in which parents make schooling decis ions for their children. We compare two educational regimes: public an d private education. In the private education regime all human capital investment decisions are made by individuals. Under public education the government uses income tax revenue to finance one input to schooli ng. In the private education regime cycles may occur even though there are constant returns to scale in the augmentable factors. In the publ ic education regime there are no cycles but poverty traps may occur. ( C) 1997 Elsevier Science B.V.