We consider an OLG economy with endogenous investment in human capital. Heterogeneity in individual human capital levels is generated by random innate ability. The production of human capital depends on each individual s investment in education. This investment decision is taken only after...

This paper uses an overlapping generations framework to analyze the implications of different financing regimes in the education sector for human capital formation and economic welfare. Agents privately invest in education after they have received a noisy information signal about their...