The name is absent

is ye+n₁^q =₃qK (1 ´ °)  i i (x i b_t) 5. N et return from education fcrertrepre

neurs is qK i i h, that is, as above, the gross return less the opportunity
costofeducation.

Each agent; ifsuXαcntly rich toa³ord education, ...nds it e≈ actively

pro,,tabletoinvestinhumaneapital. InfactI assumethatthenetmargjnal
returnfrom educationispositiveboth forentrepreneurs andforworkers. The
netmarginalreturn from education is positive ifbene.ts (higherincomes)
aregreaterthan costs (directcosts (h) and indirectcosts (i)), i.e ± > i and
qK > i.

G iven theassumptions above, andbecauseofthenon-convexityofhuman
capitalinvestmenttechnology, educationalchoice depends only on the level
of initial individual wealth: all the agents who can self-.nance education
do invest in human capital. The quali.ed percentage ofthe population is
therefore [1 i G (h)], sinceG (h) is theperc≡ntacpcfthepcpuIaticn having
initial wealth lower than h. In particular; given the hypothesis according
to which progenitors’ wealth is uniformly distributed on the support (0; 1),
the cμali...ed percentage of the . rst generation is 1 i h; whereas h is the
non-quali.ed progenitors’share.

G iventheinterestrate, thewage, therelativepriceofcapitalandphysical
capital investment technology, occupational choice exclusively depends on
the individual degree of technical ineXdαncy. A ctualy given individual
preferences, it is pro.table to undertake the entrepreneurialproject ifand
only ifentrepreneurialincome is notlowerthan worker’s income.

A cμaii...ed agent chooses to become entrepreneur ifhis degree oftechni-
c∏∣ inetdency is lowerorecμal toa threshold level pe_jn_q = ^qK qiK w, with
^e,_nq = 0 for qK < ix + w

0 ∙ ^e,_nq ∙ 1 forqK ^ix + w ^.

This threshold levelis a decreasing function ofthe interestrate, ofthe
inputrecuirementand ofthe unskilled labourwage, while itincreases with
qK. T he higher the interest rate the input recqui rement and the wage and
the ower the gross return from investment per LnitofdXdency qK, the

⁵Notethatentrepreneurialincomeisformallythesameeitherheis licuidityconstrained
ornot. A ctually ifhe can self-.nance his project, he invests x in the projectand the rest
(bt i h) in the capital market- atthe gross interest rate i. T he income ofa self...nanced
quaii...ed entrepreneur is thereforeye;q = qk (1 i ° + h) + i (bt i h ∣ x): T he income of
a self...nanced non-quali...ed entrepreneur is y^ⁿJ^q = qk (1 i ° )+ i (bt i x) : T he human
capitalinvestmentchoice described belowrules outthe existence ofa fully collateralized
non-cuali.ed entrepreneuranyways.

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