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Can risk aversion explain schooling attainments? Evidence from Italy

  • Belzil, Christian
  • Leonardi, Marco

Using unique Italian panel data, in which individual differences in behavior toward risk are measured from answers to a lottery question, we investigate if (and to what extent) risk aversion can explain differences in schooling attainments. We formulate the schooling decision process as a reduced-form dynamic discrete choice. The model is estimated with a degree of flexibility virtually compatible with semiparametric likelihood techniques. We analyze how grade transition from one level to the next varies with preference heterogeneity (risk aversion), parental human capital, socioeconomic variables and persistent unobserved (to the econometrician) heterogeneity. We present evidence that schooling attainments decrease with risk aversion, but despite a statistically significant effect, differences in attitudes toward risk account for a modest portion of the probability of entering higher education. Differences in ability(ies) and in parental human capital are much more important. in the most general version of the model, the likelihood function is the joint probability of schooling attainments, and post-schooling wealth and risk aversion.

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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 14 (2007)
Issue (Month): 6 (December)
Pages: 957-970

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Handle: RePEc:eee:labeco:v:14:y:2007:i:6:p:957-970
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