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Education as a Precautionary Asset

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  • Angela Cipollone

    (Department of Ecoomics and Finance, LUISS University)

Abstract

By using data from the latest wave of the Indonesia Life Family Survey, this paper investigates whether child time allocation depends on the joint impact of liquidity constraints, risk attitudes and time preferences. We employ a double selection model of school hours to control for endogeneity of borrowing constraints and sample selection in school enrolment. Our measures of time preferences and risk attitudes are elicited from individuals’ responses to hypothetical gambles, and households’ risk profile is proxied by the past occurrence of shocks. It will be shown that, under liquidity constraints, risk averse parents raise a precautionary demand for education as an ex-ante risk coping strategy in order to insure future consumption through higher returns from children’s work.

Suggested Citation

  • Angela Cipollone, 2011. "Education as a Precautionary Asset," Working Papers CELEG 1108, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    • Handle: RePEc:lui:celegw:1108
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    References listed on IDEAS

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    Cited by:

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    2. Sanjaya, Muhammad Ryan, 2013. "On the source of risk aversion in Indonesia using micro data 2007," Economics Discussion Papers 2013-33, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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