Economic implications of better information in a dynamic framework (Q1762754)

This paper considers an OLG model with accumulation in human capital and analyzes the economic implication about individual skills. The agents in each period differ by the random innate ability assigned to each individual. When young, all agents are screened for their abilities and this screening process (signal) constitutes a public information which is used in choosing the level of private investment in education. It is demonstrated that in the presence of risk sharing markets better information may be harmful for all in equilibrium. Finally the authors find conditions under which better information either enhances growth or reduces growth.