Risk aversion and schooling decisions

Christian Belzil (1, 2) , Marco Leonardi (3)

1 X-DEP-ECO - Département d'Économie de l'École Polytechnique
2 ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique
3 UNIMI - Università degli Studi di Milano = University of Milan

Using unique Italian panel data in which individual differences in attitudes toward risk are measurable (from a lottery pricing question), we investigate the effect of the individual specific time invariant risk aversion factor on the probability of entering higher education. Apart from the risk aversion factor, absolute risk aversion depends on various state variables (wealth, liquidity constraints, back- ground risk) and is assumed to be measured with nonclassical error. We also take into account the endogeneity of the response to the risk aversion question, as well as potential non-classical measurement error in wealth. All model specifications point out to the fact that individual specific risk aversion acts as a deterrent to higher education investment.

Mots clés: Risk Aversion; Ex-ante risk; schooling; subjective beliefs; dynamic discrete choices

Domaines: Economies et finances

Christian Belzil, Marco Leonardi. Risk aversion and schooling decisions. 2009. ⟨hal-00411099⟩