Optimal student loans and graduate tax under moral hazard and adverse selection

Robert Gary-Bobo () and Alain Trannoy

RAND Journal of Economics, 2015, vol. 46, issue 3, 546-576

Abstract: type="main">

We characterize the set of second-best “menus” of student-loan contracts in an economy with risky labor-market outcomes, adverse selection, moral hazard, and risk aversion. We combine student loans with optimal income taxation. Second-best optima provide incomplete insurance because of moral hazard. Optimal repayments must be income contingent, or the income tax must comprise a graduate tax. Individuals are ex ante unequal because of differing probabilities of success, and ex post unequal, because taxation trades off incentives and redistribution. In addition, second-best optima exhibit an interim equalization property: the poststudy but prework expected utilities of newly graduated student types must be equal.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://hdl.handle.net/10.1111/1756-2171.12097 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Optimal student loans and graduate tax under moral hazard and adverse selection (2015)
Working Paper: Optimal Student Loans and Graduate Tax under Moral Hazard and Adverse Selection (2015)
Working Paper: Optimal Student Loans and Graduate Tax under Moral Hazard and Adverse Selection (2014)
Working Paper: Optimal Student Loans and Graduate Tax under Moral Hazard and Adverse Selection (2014)
Working Paper: Optimal Student Loans and Graduate Tax under Moral Hazard and Adverse Selection (2013)
Working Paper: Optimal Student Loans and Graduate Tax under Moral Hazard and Adverse Selection (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:randje:v:46:y:2015:i:3:p:546-576

Ordering information: This journal article can be ordered from
http://www.blackwell ... al.asp?ref=0741-6261

Access Statistics for this article

RAND Journal of Economics is currently edited by James Hosek

More articles in RAND Journal of Economics from RAND Corporation Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().