Advanced Search
MyIDEAS: Login to save this paper or follow this series

Risk Aversion and Human Capital Investment: a Structural Econometric Model

Contents:

Author Info

  • Thomas Brodaty

    ()
    (THEMA, Université de Cergy-Pontoise)

  • Robert Gary-Bobo

    ()
    (Université de Paris 1, IDEP and CEPR)

  • Ana Prieto

    ()
    (THEMA, Université de Cergy-Pontoise)

Abstract

We propose to model individual educational investments as a rational decision, maximizing expected utility, conditional on some characteristics observed by the student, under the combined risks affecting future wages and schooling duration. Assuming that students' attitudes toward risk can be represented by a CRRA utility, we show that the risk-aversion parameter can be identified in a natural way, using the variation in school-leaving ages, conditional on certified educational levels. Estimation can be performed by means of classic Maximum Likelihood methods. The model can easily be compared with a non-structural, simplified version, which is a standard wage equation with endogenous dummy variables representing education levels, education levels being themselves determined by an Ordered Probit model. We find small but significant values of the coefficient of relative risk aversion, between 0:1 and 0:9. These results are obtained with a rich sample of 12,500 young men who left the educational system in 1992, in France.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.u-cergy.fr/IMG/2006-06.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Marion Oury)
Download Restriction: no

Bibliographic Info

Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2006-06.

as in new window
Length:
Date of creation: 15 Mar 2006
Date of revision:
Handle: RePEc:ema:worpap:2006-06

Contact details of provider:
Postal: 33, boulevard du port - 95011 Cergy-Pontoise Cedex
Phone: 33 1 34 25 60 63
Fax: 33 1 34 25 62 33
Email:
Web page: http://thema.u-cergy.fr
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Armitage,Seth, 2005. "The Cost of Capital," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521801959.
  2. Christian Belzil & Marco Leonardi, 2007. "Can Risk Aversion Explain Schooling Attainments?: evidence from Italy," Post-Print, HAL halshs-00201351, HAL.
  3. Hartog, Joop & Vijverberg, Wim P., 2002. "Do Wages Really Compensate for Risk Aversion and Skewness Affection?," IZA Discussion Papers 426, Institute for the Study of Labor (IZA).
  4. Belzil, Christian & Hansen, Jörgen, 2002. "Earnings Dispersion, Risk Aversion and Education," IZA Discussion Papers 513, Institute for the Study of Labor (IZA).
  5. James J. Heckman, 1977. "Dummy Endogenous Variables in a Simultaneous Equation System," NBER Working Papers 0177, National Bureau of Economic Research, Inc.
  6. Colm Harmon & Hessel Oosterbeek & Ian Walker, 2003. "The Returns to Education: Microeconomics," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 17(2), pages 115-156, 04.
  7. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(2), pages 262-333, April.
  8. Vincent Hogan & Ian Walker, 2006. "Education Choice under Uncertainty - Implications for Public Policy," Working Papers, School Of Economics, University College Dublin 200615, School Of Economics, University College Dublin.
  9. Michael P. Keane & Kenneth I. Wolpin, 1995. "The career decisions of young men," Working Papers, Federal Reserve Bank of Minneapolis 559, Federal Reserve Bank of Minneapolis.
  10. Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, Econometric Society, vol. 51(2), pages 507-12, March.
  11. Ignacio Palacios-Huerta, 2003. "An Empirical Analysis of the Risk Properties of Human Capital Returns," American Economic Review, American Economic Association, American Economic Association, vol. 93(3), pages 948-964, June.
  12. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, American Economic Association, vol. 64(6), pages 950-63, December.
  13. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 307-33, March.
  14. Sandra E. Black & Paul J. Devereux & Kjell G. Salvanes, 2005. "The More the Merrier? The Effect of Family Size and Birth Order on Children's Education," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 120(2), pages 669-700, May.
  15. Gary-Bobo, Robert J. & Picard, Natalie & Prieto, Ana, 2006. "Birth Order and Sibship Sex Composition as Instruments in the Study of Education and Earnings," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5514, C.E.P.R. Discussion Papers.
  16. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
  17. Weiss, Yoram, 1972. "The Risk Element in Occupational and Educational Choices," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 80(6), pages 1203-13, Nov.-Dec..
  18. Williams, Joseph T, 1979. "Uncertainty and the Accumulation of Human Capital over the Life Cycle," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 52(4), pages 521-48, October.
  19. Armitage,Seth, 2005. "The Cost of Capital," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521000444.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Frank M. Fossen & Daniela Glocker, 2009. "Expected Future Earnings, Taxation, and University Enrollment: A Microeconometric Model with Uncertainty," SOEPpapers on Multidisciplinary Panel Data Research 241, DIW Berlin, The German Socio-Economic Panel (SOEP).
  2. Frank Fossen & Daniela Glocker, 2011. "Expected future earnings, taxation, and university enrollment," International Tax and Public Finance, Springer, Springer, vol. 18(6), pages 688-723, December.
  3. Magali Beffy & Denis Fougère & Arnaud Maurel, 2012. "Choosing the Field of Study in Postsecondary Education: Do Expected Earnings Matter?," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 334-347, February.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ema:worpap:2006-06. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marion Oury).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.