Speci c Human Capital Investments in Weak Skills under Uncertain Terms of Trade

Specialization and division of labor are the sources of high productivity in the modern society. Workers may face the choice between general and speci\u85c human capital investments. Given that the individual agents face uncertainty in the terms of trade, what are the optimal strategy for heterogeneous individual agents in human capital investments? In the absense of insurance markets, general investments give an option value for the changes in the environment. When workers are born heteregoneous in two-dimension skills used in di¤erent sectors, do they invest in what they were good at when they were born? Do they invest in general human capital? Or do they invest in what they were not originally good at? I nd that some workers choose to invest in their weakest skills via speci\u85c human capital investments, provided that the size of risk is big and that the parameter of relative risk aversion is larger than one