Information seeking and human capital under robust decision making

Angelopoulos, K. and Malley, J. (2010) Information seeking and human capital under robust decision making. Working Paper. CESifo Group, Munich, Germany.

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We examine how an incentive to engage in information seeking to reduce the size of model misspecification affects human capital and in turn the effectiveness of robust policy making. The empirical relationship between information seeking and human capital in a cross-section of countries points to an inverted-U form. To capture this, we incorporate an additional form of precautionary behavior into a two-sector business cycle model by allowing a robust decision maker to use time for information seeking and existing human capital to mitigate the effects of model misspecification. Robust policies under different technologies for acquiring such knowledge suggest a non-monotonic (inverted-U) relationship between human capital and information time. Given that robust policies with higher human capital offer better protection against unfavorable realisations of model uncertainty, the effectiveness of robust policies also rises and then falls as more time is allocated to information seeking.

Item Type:Research Reports or Papers (Working Paper)
Glasgow Author(s) Enlighten ID:UNSPECIFIED
Authors: Angelopoulos, K., and Malley, J.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:CESifo working paper
Publisher:CESifo Group

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Project CodeAward NoProject NamePrincipal InvestigatorFunder's NameFunder RefLead Dept
512541Optimal taxation in heterogeneous agent dynamic general equilibrium models.James MalleyEconomic & Social Research Council (ESRC)ES/H021140/1BUS - ECONOMICS