I argued that outside investment in human young, including the unpaid work of parenting, might not be far from constant. School costs rise as parenting costs
decline. (A10.1) in that case gives
H(x)= ale -1), if x<=A. (A10.2)
At maturity (A10.1) becomes H(A)= | . C (ze dz, (A10.3)
H in adulthood is easiest to model at present value rather than present cost. Human
cash flow is pay 7 less C_. Discounted cash flow becomes
Hox) =f" (r-C, (Her dz, if x>=A, (A10.4)
where r(z) now is best understood as time preference rate. This is identical to expected rate of return, as shown in the diamond ring parable. Note that there is no explicit adjustment for asset risk. | argue that human capital is not inherently riskier than physical capital, but rather adapts to the risk tolerance of its owner. It is riskier collectively because owned disproportionately by the risk-tolerant young. I treat risk profile as a function of the owner’s age, gender and wealth. (A10.4) describes cohort value, and so neglects individual differences in gender and wealth as already
captured in the characteristics of the cohort.
I model C, as negligible in adulthood because I see so little of it. That would reduce
adult human cash flow to pay alone, and so simplify (A10.4) to
APPENDIX A: The Argument in Notation 3/7/16 23
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