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Remarks on Income Contingent Loans: How Effective can they be at Mitigating Risk?

In: Income Contingent Loans

Author

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  • Joseph E. Stiglitz

    (Columbia University)

Abstract

A well-known principle holds that equity provides better risk sharing opportunities than debt, but that there are greater enforcement problems associated with equity. Income contingent loans (ICL) represent an efficient (low transactions cost) way of implementing equity contracts for human capital.1 The amount the individual repays is dependent on his or her income. While it seems natural to link ICL with investments that increase the value of human capital — most notably education — there is no necessary reason to limit it to such investments.

Suggested Citation

  • Joseph E. Stiglitz, 2014. "Remarks on Income Contingent Loans: How Effective can they be at Mitigating Risk?," International Economic Association Series, in: Bruce Chapman & Timothy Higgins & Joseph E. Stiglitz (ed.), Income Contingent Loans, chapter 2, pages 31-38, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-137-41320-8_3
    DOI: 10.1057/9781137413208_3
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    Cited by:

    1. Baldwin, K.G.H. & Chapman, Bruce & Raya, Umbu, 2015. "Using Income Contingent Loans for the Financing of the Next Million Australian Solar Rooftops," Working Papers 249513, Australian National University, Centre for Climate Economics & Policy.
    2. Long, Ngo Van, 2019. "Financing higher education in an imperfect world," Economics of Education Review, Elsevier, vol. 71(C), pages 23-31.
    3. Bruce Chapman & Lorraine Dearden, 2022. "Income-contingent loans in higher education financing," IZA World of Labor, Institute of Labor Economics (IZA), pages 227-227, October.
    4. Bruce Chapman & Lorraine Dearden, 2017. "Conceptual and Empirical Issues for Alternative Student Loan Designs: The Significance of Loan Repayment Burdens for the United States," The ANNALS of the American Academy of Political and Social Science, , vol. 671(1), pages 249-268, May.
    5. Chapman, Bruce & Doris, Aedín, 2019. "Modelling higher education financing reform for Ireland," Economics of Education Review, Elsevier, vol. 71(C), pages 109-119.
    6. Gareth Bryant & Ben Spies-Butcher, 2020. "Bringing finance inside the state: How income-contingent loans blur the boundaries between debt and tax," Environment and Planning A, , vol. 52(1), pages 111-129, February.

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