Journal Article Stability of Zero Production Under Life-Cycle Savings Get access Robert M. Costrell Robert M. Costrell University of Massachusetts, Amherst Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 48, Issue 4, October 1981, Pages 661–665, https://doi.org/10.2307/2297207 Published: 01 October 1981 Article history Received: 01 June 1980 Accepted: 01 March 1981 Published: 01 October 1981

The author models standards for educational credentials, such as high-school diplomas. Standard-setters maximize their conception of social welfare, knowing that utility-maximizing students choose whether to meet the standard. The author shows that more egalitarian policymakers set lower standards, the median voter would prefer higher standards (under symmetric distributions), and decentralization lowers standards (among identical communities). Optimal standards do not necessarily fall with increased student preference for leisure, deterioration of nonstudent inputs to education, or increased student heterogeneity. Superseding binary credentials by perfect information increases average achievement and social welfare for plausible degrees of heterogeneity, egalitarianism, and pooling under decentralization.

I model standards for educational credentials, such as high-school diplomas. Standard-setters maximize their conception of social welfare, knowing that utility-maximizing students choose whether to meet the standard. I show that more egalitarian policymakers set lower standards, the median voter would prefer higher standards (under symmetric distributions), and decentralization lowers standards (among identical communities). Optimal standards do not necessarily fall with increased student preference for leisure, deterioration of nonstudent inputs to education, or increased student heterogeneity. Superseding binary credentials by perfect information increases average achievement and social welfare, for plausible degrees of heterogeneity, egalitarianism, and pooling under decentralization.

We examine the mapping of the distribution of ability onto earnings in a hierarchical job assignment model. Workers are assigned to a continuum of jobs in fixed proportions, ordered by sensitivity to ability. The model implies a novel marginal productivity interpretation of wages. We derive comparative statics for changes in technology and in the distribution of ability. We find conditions under which a more unequal distribution of ability maps onto a more/less unequal distribution of earnings. We also analyze an assignment model with variable proportions and find that in the Cobb‐Douglas case, a rise in the inequality of ability always narrows the range of earnings.