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The Effects of Temptation on the Optimal Provision of Education

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  • Soohyung Lee

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    (Stanford University)

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    Abstract

    This paper provides a framework for analyzing optimal government transfers of education when individuals are tempted to underinvest in education. The government may devise a transfer using a combination of free compulsory education, vouchers and price subsidies. I show that government intervention is needed if there is no deadweight loss associated with taxation. If there is a loss from taxation, government intervention is needed only if the level of temptation is sufficiently high. For high levels of temptation, free compulsory education or vouchers are optimal, whereas price subsidies may be optimal for intermediate levels of temptation.

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    File URL: http://www-siepr.stanford.edu/repec/sip/05-030.pdf
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    Bibliographic Info

    Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 05-030.

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    Date of creation: Sep 2005
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    Handle: RePEc:sip:dpaper:05-030

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    Related research

    Keywords: Temptation; Education Policy; Hyperbolic Discounting; Self-Control;

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    1. Per Krusell & Burhanettin Kuruşçu & Anthony A. Smith Jr., 2010. "Temptation and Taxation," Econometrica, Econometric Society, vol. 78(6), pages 2063-2084, November.
    2. Faruk Gul & Wolfgang Pesendorfer, 2004. "Self-Control and the Theory of Consumption," Econometrica, Econometric Society, vol. 72(1), pages 119-158, 01.
    3. Faruk Gul & Wolfgang Pesendorfer, 2003. "Self-control, revealed preference and consumption choice," Levine's Working Paper Archive 506439000000000362, David K. Levine.
    4. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
    5. Hanushek, Eric & Charles Ka Yui Leung & Kuzey Yilmaz, 2002. "Redistribution through Education and Other Transfer Mechanisms," Royal Economic Society Annual Conference 2002 94, Royal Economic Society.
    6. 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, vol. 106(2), pages 262-333, April.
    7. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    8. Faruk Gul & Wolfgang Pesendorfer, 2001. "Temptation and Self-Control," Econometrica, Econometric Society, vol. 69(6), pages 1403-1435, November.
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