Overview and details of the sessions of this conference. Please select a date or location to show only sessions at that day or location. Please select a single session for detailed view (with abstracts and downloads if available).
Session Chair: Constantine Yannelis, University of Chicago Discussant: Tim de Silva, MIT Sloan School of Management
Location:Room 1212
Presentations
Household Debt Overhang and Human Capital Investment
Gustavo Manso2, Alejandro Rivera1, Hui Grace Wang3, Han Xia1
1UT-Dallas; 2UC-Berkeley; 3Bentley Univeristy
Unlike labor income, human capital is inseparable from individuals and does not completely accrue to creditors, even at default. As a consequence, human capital investment should be more resilient to “debt overhang” than labor supply. We develop a dynamic model displaying this important difference. We find that while both labor supply and human capital investment are hump-shaped in leverage, human capital investment tails off less aggressively as leverage builds up. This is especially the case when human capital depreciation rates are lower. Importantly, because skills acquisition is only valuable when households expect to supply labor in the future, the anticipated greater reduction in labor supply due to debt overhang back-propagates into a reduction in skills acquisition ex ante. Using longitudinal data, we provide empirical support for the model.