ENDOGENOUS SOCIAL NETWORKS AND INEQUALITY IN AN INTERGENERATIONAL SETTING*

The article examines the joint evolution of human capital investment and social networking where the network may be endogenous or exogenous. It extends Cabrales et al. (Games and Economic Behavior 72 (2011), 339-60) to dynamic settings to allow for intergenerational transfers of human capital and social networking endowments as joint decisions. Social multipliers characterize the social equilibria. The associated intergenerational transfer elasticities exhibit rich dependence on social effects allowing the intergenerational transfers elasticity to be increasing with inequality in parents' human capitals. The stochastic steady states highlight the cross-sectional human capital distribution as outcome of shocks to cognitive and social skills coefficients.