Collective and Individual Investments in Financial Literacy
A collective and an individual investment in financial literacy, plus intrinsic skills, contribute to each household’s financial literacy. We show that low- and high-skilled households oppose the collective investment, contrary to households in the middle. Despite the lack of well-behaved preferences, the collective investment that maximizes aggregate consumption arises in equilibrium, given that the political salience of financial literacy is low enough. When the salience is too high, the equilibrium collective investment maximizes the median-voter’s consumption. The high salience equilibrium yields a lower collective investment, which harms both efficiency and equality, compared to the low salience equilibrium.
Co-Author(s): Dimitrios Xefteris