Cohort size and schooling choice

We develop a perfect-foresight overlapping generations model to investigate the effects of cohort size on schooling decisions and cohort-specific welfare measures. A set of sufficient conditions are presented which ensure the existence of an unique sequence of human capital rental rates and schooling choices for any sequence of cohort sizes. We calibrate the partial equilibrium model using data on schooling investments and aggregate wages over the period 1920 through 1980, and use the parameters to assess the magnitude of lifetime cohort wealth and schooling elasticities computed with respect to the entire cohort size sequence. We find that the equilibrium response of schooling to perturbations in the cohort size sequence is small, so that the adverse effects of increases in the size of own and neighboring cohorts on cohort wealth are not significantly migrated by adjustments in schooling investments within our modelling framework.This research was partially supported by National Institute of Child Health and Human Development grant R01-HD28409 and by the C. V. Starr Center for Applied Economics at New York University. Comments and suggestions by three anonymous referees have resulted in a substantially improved paper. Francis Gupta provided extremely able research assistance. All remaining errors and omissions are attributable to me.