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Education as a Precautionary Asset

  • Angela Cipollone

    ()

    (Department of Ecoomics and Finance, LUISS University)

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.

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Paper provided by Dipartimento di Economia e Finanza, LUISS Guido Carli in its series Working Papers CELEG with number 1108.

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Date of creation: 2011
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Handle: RePEc:lui:celegw:1108
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