| dc.description.abstract | We examine the impact of a desire for social approval on education and occupation choice and model the endogenous determination of perceptions that influence such approval. In a two-sector overlapping generations framework, agents born with ability endowments in both occupations must choose one as their career. An agent's choice is influenced by social approval, which depends upon the community's perception of her ability in her chosen career. The accuracy of a community's perception increases with the fraction of its members performing similar work, because it is easier to assess ability in one's own profession. With positive correlation in skills, the desire for social approval, combined with imperfect assessment of ability, leads to multiple steady states. In all steady states there is overcrowding in the favorably perceived occupation, with misallocation across both occupations. Which sector becomes the favorable occupation depends on the initial occupational composition in the community. When skill distributions differ across sectors, positive correlation in skills can result in a low-education trap as described by Wilson(1987) -- i.e. the entire community opts for the low variance (low-skilled) occupation. The model explains when individual pecuniary incentives may not reduce under-investment in education, and suggests alternative solutions to improve outcomes. | |
