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Prodigal Sons, Values and Investment in Human Capital (preliminary draft)

Isztin, Peter (2021): Prodigal Sons, Values and Investment in Human Capital (preliminary draft).

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Abstract

(Adult) children are sometimes "prodigal" with the capital they are endowed with by their parents. In particular, they might waste the money they have been given. However, they can also be prodigal in their use of their human capital. When, for instance, an individual gets addicted to a drug, she is likely miss out on labor market opportunities, essentially "wasting" her human capital. Or he might join a sect, take up heavy drinking, engage in crime or even commit suicide. Such choices are often described as instances of "self-destruction" (a moniker which is literal in the case of suicide). If the parent foresees such self-destructive acts, she will invest less in the child's human capital. As optimal contracting between the parent and the child is not feasible, parents will spend time and energy to teach the child "values" to live by. Value-investments can increase the well-being of both the parent and the child by enabling efficient investment in human capital.

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