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Can Risk Aversion Explain Schooling Attainments? Evidence From Italy

  • Christian Belzil

    ()

    (GATE - Groupe d'analyse et de théorie économique - CNRS - UL2 - Université Lumière - Lyon 2 - Ecole Normale Supérieure Lettres et Sciences Humaines, IZA - Institute for the study of labor - Institute for the Study of Labor - IZA)

  • Marco Leonardi

    (IZA - Institute for the study of labor - Institute for the Study of Labor - IZA, Università degli studi di Milano [Milano])

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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Date of creation: Oct 2006
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Publication status: Published in Working paper du GATE 2006-07. 2006
Handle: RePEc:hal:journl:halshs-00142551
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