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Choosing the type of income-contingent loan: risk-sharing versus risk-pooling

Author

Listed:
  • Elena Del Rey

    (Universitat de Girona)

  • María Racionero

    (Australian National University)

Abstract

This paper analyses the choice between risk-sharing and risk-pooling income-contingent loans for higher education of risk-averse individuals who differ in their ability to benefit from education and inherited wealth. The paper identifies the possible outcomes of a majority vote between the two income-contingent schemes and provides several examples where the risk-pooling income-contingent loan is preferred. The paper then discusses the implications on participation and voting outcomes if successful graduates are mobile and provides examples where the riskpooling income-contingent loan remains being preferred. Risk-pooling schemes can however be prone to adverse selection problems, particularly if students are mobile. The paper explores the implications of allowing students to opt out of the riskpooling income-contingent loan for a pure loan. It shows that risk-pooling income-contingent loans can be sustained even when some students opt out.

Suggested Citation

  • Elena Del Rey & María Racionero, 2014. "Choosing the type of income-contingent loan: risk-sharing versus risk-pooling," Working Papers 2014/7, Institut d'Economia de Barcelona (IEB).
    • Handle: RePEc:ieb:wpaper:doc2014-7
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Philippe De Donder & Francisco Martinez-Mora, 2015. "On the Political Economy of University Admission Standards," Discussion Papers in Economics 15/11, Division of Economics, School of Business, University of Leicester.
    2. Marcel Gérard & Silke Übelmesser, 2013. "Globalization and Access to Higher Education – Policy Implications," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 11(2), pages 03-10, 07.
    3. Bernhard Eckwert & Itzhak Zilcha, 2017. "Student loans: When is risk sharing desirable?," International Journal of Economic Theory, The International Society for Economic Theory, vol. 13(2), pages 217-231, June.
    4. Silke Übelmesser & Marcel Gérard, 2014. "Financing Higher Education when Students and Graduates are Internationally Mobile," Jena Economics Research Papers 2014-009, Friedrich-Schiller-University Jena.
    5. Haupt, Alexander & Krieger, Tim & Lange, Thomas, 2013. "Education policy, student migration, and brain gain," Discussion Paper Series 2013-05, University of Freiburg, Wilfried Guth Endowed Chair for Constitutional Political Economy and Competition Policy.
    6. De Donder, Philippe & Martinez-Mora, Francisco, 2017. "The political economy of higher education admission standards and participation gap," Journal of Public Economics, Elsevier, vol. 154(C), pages 1-9.

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    More about this item

    Keywords

    Voting; higher education; income-contingent loans; risk; mobility;
    All these keywords.

    JEL classification:

    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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