Abstract
In the 21st century, nations such as Japan must confront not only an aging society, but also national disasters (e.g., earthquake, typhoon, and flood) and international disputes (e.g., war and terrorism). In an aging society, the population of older generation increases but the number of children and the population of working generation decreases. Productivity efficiency decreases and economic growth decline even if productivity is improved. To ameliorate those effects, economic agents promote the accumulation of human capital. Additionally, the enrichment of education makes agents secure with life risk because education enhances the agents’ abilities and their income. Nevertheless, the nation must also confront national risks and controversial issues related to national security policy. For the agents, national risk affects consumption and saving behaviour because the environment around agents changes.
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Notes
- 1.
Similar to Omori (2018), we develop the overlapping-generations model in a small open economy. We can develop a similar model in a closed economy. The path in a closed economy might not fundamentally differ from that in a small open economy.
- 2.
The capital–labour ratio and wage rate are also constant. Production technology is assumed to be governed by a standard neoclassical constant-returns-to-scale production function.
- 3.
- 4.
As shown in Omori (2018), in this utility function, parents obtain utility from consumption and from education of their children. The value of this education is summarised by the child’s human capital. This utility is derived from parents’ love of or duty to their children.
- 5.
Assuming that the marginal disutility of damage is decreasing in our model, \(p_{D}\) in the utility function denotes the subjective provability of national risk rather than the occurrence probability of national risk.
- 6.
- 7.
In many economically developed countries, military power presents a deterrent to other countries and lowers the probability of international disputes.
- 8.
We assume that the government expends resources for national risk as a government function.
- 9.
This economy is regarded as a small open economy in which the capital–labour ratio, interest rate, and wage rate are constant.
- 10.
From (14.31), we find that the allocation rate, \(\varDelta \) to maximise social welfare is one. However, because of government’s functions in the economy, governments must allocate public expenditure for national security. Therefore, it is not realistic that such optimal rate \(\varDelta \) is one.
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Acknowledgements
This work was supported by USPS KAKENHI Grant Numbers JP16H03635 and JP16K03719. A previous version of this paper was presented at the 2018 Fall conference of Japan Association for Applied Economics at Daito Bunka University. The author thanks Junko DOI, Daisuke IKAZAKI, Masafumi TSUBUKU, and other participants for useful comments to the previous version of this paper.
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Omori, T. (2019). Welfare Effects of Public Education and National Security. In: Hosoe, M., Ju, BG., Yakita, A., Hong, K. (eds) Contemporary Issues in Applied Economics. Springer, Singapore. https://doi.org/10.1007/978-981-13-7036-6_14
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