Re: human capital market

Robin Hanson (hanson@econ.Berkeley.EDU)
Thu, 26 Feb 1998 10:07:46 -0800

Harvey Newstrom notes:
>My partner and I have incorporated as an S-Corp. We have 100 shares of
>Stock in our future income stream. We could sell these shares to anyone
>under any contract arrangements we wish.

Cool. But does this cover all future income, or just income earned via
this corporation? And is this a percentage of gross income, or only after
certain "expenses" are deducted? And could you contractually commit to
retaining at least say 60% of your income shares, so buyers have reason
to believe you will work hard?

Unfortunately, bankruptsy is a bit too easy. And people might reasonably
fear that you were offering them this very unusual asset because you know
something unusually disappointing about your future income prospects.

Wei Dai <> writes:
>> Um, economics does not say this. Economic theory offers us many possible
>> theories which might explain the lack of direct human capital markets. The
>> explanation above is only one of many. I think a more likely explanation
>> is that no one has paid the start up costs to try to get a market like
>> this going.
>That may be true, but an economic explanation should say why no one has
>paid the start up costs. Is it not a profitable business (why not?) or has
>no one thought of it?

Every explanation will suggest these sorts of further questions. And of course
the plausibility of an explanation depends on how plausibly such questions are

>How a human capital market affects equality depends on what causes
>inequality. If inequality is caused mainly by accidents affecting earning
>potential, then such a market would increase equality. If inequality is
>caused mainly by people having different discount rates for the future,
>then such a market would decrease equality.


>I had assumed that the latter is true, but I don't really have any
>evidence either way. Are you aware of any research in this area?

I know that there is lots of research, but I'm not really up on it.
I will say that time discounts are probably not as good an explanation of
differences across times, nations, or states than they might be across
neighborhoods or within a family.

"Peter C. McCluskey" <> writes:
>It would allow people to achieve that equalizing effect, but I suspect
>that the people most likely to be poor without such markets are also the
>people least likely to have the foresight or intelligence to realize the
>benefits of such markets.

Even if true, this is still be consistent with an equalizing effect.

>This is an important reason why such markets would increase inequality
>- the people who can take advantage of this are the minority who are
>most aware of the future. Once the average person realizes that most wages
>will drop significantly, this market will dry up.

If such markets for exchanging wage shares are begun well before there
is a substantial risk of such a big shock, and for other reasons, then
this is not such a problem. Fortunately I can see benefits of such markets
independent of insuring against an upload shock.

Robin Hanson
RWJF Health Policy Scholar, Sch. of Public Health 510-643-1884
140 Warren Hall, UC Berkeley, CA 94720-7360 FAX: 510-643-8614