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Literacy Traps: Society-wide Education and Individual Skill Premia
by Vidya Atal, Kaushik Basu, John Gray, Travis Lee
(February 2009)

Using a model of O-ring production function, the paper demonstrates how certain communities can get caught in a low-literacy trap in which each individual finds it not worthwhile investing in higher skills because others are not high-skilled. The model sheds light on educational policy. It is shown that policy for promoting human capital has to take the form of a mechanism for solving the coordination failure in people’s choice of educational strategy.
Text: See Discussion Paper No. 4047  


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