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A Microfoundation for Social Increasing Returns in Human Capital Accumulation

Daron Acemoglu
The Quarterly Journal of Economics
Vol. 111, No. 3 (Aug., 1996), pp. 779-804
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2946672
Page Count: 26
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A Microfoundation for Social Increasing Returns in Human Capital Accumulation
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Abstract

This paper proposes a microfoundation for social increasing returns in human capital accumulation. The underlying mechanism is a pecuniary externality due to the interaction of ex ante investments and costly bilateral search in the labor market. It is shown that the equilibrium rate of return on the human capital of a worker is increasing in the average human capital of the workforce even though all the production functions in the economy exhibit constant returns to scale, there are no technological externalities, and all workers are competing for the same jobs.

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