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The Effects of Temptation on the Optimal Provision of Education

  • Soohyung Lee

    ()

    (Stanford University)

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    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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    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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    1. Eric Hanushek & Charles Ka Yui Leung & Kuzey Yilmaz, 2001. "Redistribution through Education and Other Transfer Mechanisms," NBER Working Papers 8588, National Bureau of Economic Research, Inc.
    2. W. Pesendorfer & F. Gul, 1999. "Self-Control and the Theory of Consumption," Princeton Economic Theory Papers 99f2, Economics Department, Princeton University.
    3. Faruk Gul & Wolfgang Pesendorfer, 2001. "Temptation and Self-Control," Econometrica, Econometric Society, vol. 69(6), pages 1403-1435, November.
    4. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
    5. 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.
    6. Faruk Gul & Wolfgang Pesendorfer, 2004. "Self Control, Revealed Preferences and Consumption Choice," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(2), pages 243-264, April.
    7. Per Krusell & Burhanettin Kuruşçu & Anthony A. Smith Jr., 2010. "Temptation and Taxation," Econometrica, Econometric Society, vol. 78(6), pages 2063-2084, November.
    8. 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.
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