Education, Disappointment and Optimal Policy

38 Pages Posted: 16 Jan 2015

See all articles by Dan Anderberg

Dan Anderberg

University of London, Royal Holloway College - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Claudia Cerrone

Max Planck Institute for Research on Collective Goods

Date Written: December 30, 2014

Abstract

Justification for policies to encourage investments in education, particularly for individuals at the lower end of the ability distribution, may be provided by behavioural economics. We present a prototypical model where individuals who are potentially loss averse around their expected outcome make risky investments in education and we draw on optimal tax theory to explore the design of policy. The model highlights the critical roles played by (i) the relationship between behavioural risk preferences, standard risk aversion and labour supply behaviour, (ii) the risk properties of education, and (iii) the degree of observability of individual academic ability.

Keywords: education, risk, disappointment, optimal taxation

JEL Classification: D810, H210, I210

Suggested Citation

Anderberg, Dan and Cerrone, Claudia, Education, Disappointment and Optimal Policy (December 30, 2014). CESifo Working Paper Series No. 5141. Available at SSRN: https://ssrn.com/abstract=2550144

Dan Anderberg (Contact Author)

University of London, Royal Holloway College - Department of Economics ( email )

Royal Holloway College
Egham
Surrey, Surrey TW20 0EX
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Claudia Cerrone

Max Planck Institute for Research on Collective Goods ( email )

Kurt Schumacher Str 10
Bonn, 53113
Germany

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