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Education, Disappointment and Optimal Policy

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  • Dan Anderberg
  • Claudia Cerrone

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.

Suggested Citation

  • Dan Anderberg & Claudia Cerrone, 2014. "Education, Disappointment and Optimal Policy," CESifo Working Paper Series 5141, CESifo.
    • Handle: RePEc:ces:ceswps:_5141
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    References listed on IDEAS

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    Cited by:

    1. Dan Anderberg & Claudia Cerrone, 2017. "Investment in education under disappointment aversion," Economics Bulletin, AccessEcon, vol. 37(3), pages 1533-1540.

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    More about this item

    Keywords

    education; risk; disappointment; optimal taxation;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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