Life Expectancy, Human Capital Formation, and Per-Capita Income

Abstract: We construct a microeconomic-based model that provides a causal relationship between life expectancy, human capital formation, and per-capita income. Our central idea is that the timing of intergenerational transfers affects human capital formation. We demonstrate that in an economy where life expectancy is long and the parental transfer to the offspring of the family's productive resource - land - takes place late in life, individuals invest more in human capital formation than if life expectancy is short and the parental transfer takes place early in life. Since the timing of the transfer of familial assets is not known with certainty, a decision to invest in human capital formation must factor in the possibility that acquired human capital will not be used or that it will be used only a little. That is, if the earnings arising from combining labor with a productive physical asset - land - are higher than the earnings arising from assetless application of labor amplified by human capital, the individual will switch from the latter application to the former engagement and this possible shift has to be considered when making the decision to acquire human capital. The productivity implications arising from human capital formation behavior are such that (economy-wide) per-capita income is higher when parental life expectancy is longer.;