The paper develops a model of the intergenerational transmission of human capital that reflects both individual choice and neighborhood interactions. It implies a law of motion for human capital that under certain conditions exhibits multiple equilibria that differ in terms of stability. As a result, the distribution of human capital across the population in the long run may not collapse into a si... read morengle value. This result is entirely due to: first, presence of nonlinear neighborhood interactions, and, second, the elasticity of substitution between own human capital and neighborhood interactions being sufficiently larger than the elasticity of substitution between one's child's human capital and own consumption. The model supports the Kuznets hypothesis and may be extended to allow for residential choice. Empirical analysis with geocoded data from the Panel Study of Income Dynamics, validates Kremer's results on the role of neighborhood effects, but also confirms by means of parametric and nonparametric methods the model's predictions of nonlinear effects of parents' education and of neighbors' education.read less
Ioannides, Yannis M. "Nonlinear Neighborhood Interactions and Intergenerational Transmission of Human Capital." In Essays in Economic Theory, Growth and Labour Markets: A Festschrift in Honor of Emmanuel Drandakis, edited by George Bitros and Yannis Katsoulakos, 75-112. Cheltenham, UK: Edward Elgar, 2002.