Abstract
ABSTRACTThis paper extends Becker's basic model on investment in human capital by introducing effort as a decision variable. Based on this extended model we consider the efficiency of two popular study‐grant schemes and propose a third which unequivocally increases the student's effort and may thereby resolve the moral hazard problem created by the student's self‐interested behaviour. In addition, some policy issues concerning conflicts between the students' and the policy‐maker's objectives are discussed.
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