We analyze the distributional e¤ects of adjustment cost in an environment with incomplete capital market. We find that a higher adjustment cost for human capital acquisition slows down the intergenerational mobility and results in a persistent inequality across generations. A low depreciation...

The fixed effects (FE) estimator of "conditional convergence" in income based dynamic panel models could be biased downward when capital adjustment cost is present. Such a capital adjustment cost means a rising marginal cost of investment which could slow down the convergence. The standard FE...