The Role of Time Preferences in Educational Decision Making

34 Pages Posted: 15 Dec 2016

See all articles by Daniel Kemptner

Daniel Kemptner

German Institute for Economic Research (DIW Berlin)

Songül Tolan

Joint Research Center of the European Commission

Date Written: September 2016

Abstract

We analyze the implication of time-inconsistent preferences in educational decision making and corresponding policies using a structural dynamic choice model. Based on a novel identification approach, we exploit variation in average years invested in degree attainment through various educational reforms to identify the discount factor of hyperbolic time preferences. We make two important research contributions. First, we estimate our model using data from the German Socioeconomic Panel (SOEP) and provide quantitative evidence for time-inconsistent behavior in educational decision making. Second, we evaluate the relevance of time-inconsistent behavior for the effectiveness of education policies. For this purpose, we simulate policies where time preferences may play an important role: (1) an increase in the state grant for students as a way to affect short-term costs while at school and (2) an increase in the state grant as a loan that must be paid back after education is completed. We find substantial differences in the educational outcomes when comparing them to the outcomes based on a model specification with exponential discounting. Hence, the common assumption of exponential discounting in educational decisions may be too restrictive.

Keywords: time preferences, hyperbolic discounting, structural estimation, dynamic discrete choice, education

JEL Classification: C61, D91, I21

Suggested Citation

Kemptner, Daniel and Tolan, Songül, The Role of Time Preferences in Educational Decision Making (September 2016). DIW Berlin Discussion Paper No. 1628, Available at SSRN: https://ssrn.com/abstract=2885763 or http://dx.doi.org/10.2139/ssrn.2885763

Daniel Kemptner (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Songül Tolan

Joint Research Center of the European Commission ( email )

Sevilla
Spain

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
21
Abstract Views
268
PlumX Metrics