Unequal opportunities and human capital formation

This paper develops a tractable, heterogeneous agents general equilibriummodel where individuals have different endowments of the factors that complement the schooling process. The paper explores the relation between inequality of opportunities, inequality of outcomes, and efficiency in human capital formation. Using numerical solutions we study how the endogenous variables of the model respond to two different interventions in the distribution of opportunities: a mean-preserving spread and a change in the support of the distribution of endowments. The results from the simulation of the model suggest that a higher degree of inequality of opportunities is associated with lower average human capital in the population, a lower fraction of individuals investing in human capital, higher inequality in the distribution of human capital, and higher wage inequality. In other words, the model (based on standard assumptions) does not predict a trade-off between efficiency and equality of opportunity in human capital formation.