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Earning Risks, Parental Schooling Investment, and Old-Age Income Support From Children

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Abstract

Old-age income support is an important motive for parents to invest in schooling of their children in developing countries. At the time parents choose schooling investment for their children, both parental future income and return from schooling are uncertain. This paper analyzes effects of parental income risk and human capital investment risk on parental schooling investment using alternative models (altruism and educational loan model) of determination of old-age income support in a model with intergenerational transfers. It finds that effects of these risks on schooling investment depend on whether old-age income support is state-contingent. When income support is state-contingent, increasing parental income risk (human capital investment risk) has a positive (negative) effect on schooling investment. However, when income support is not state-contingent, effects of these two types of risks may get reversed. Numerical analysis using Indonesian data suggests that risks have significant negative effect on schooling investment.

Suggested Citation

  • Alok Kumar, 2019. "Earning Risks, Parental Schooling Investment, and Old-Age Income Support From Children," Department Discussion Papers 1903, Department of Economics, University of Victoria.
    • Handle: RePEc:vic:vicddp:1903
    Note: ISSN 1914-2838 JEL Classifications: O15, D60, I20, I25, J22
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    Keywords

    Schooling; Parental Income Risk; Human Capital Investment Risk; Old-Age Income Support; Risk-Sharing;
    All these keywords.

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