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The role of time preferences in educational decision making

Daniel Kemptner and Songuel Tolan

Economics of Education Review, 2018, vol. 67, issue C, 25-39

Abstract: We analyze the implication of time-inconsistent preferences in educational decision making and corresponding policies using a structural dynamic choice model. 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 (search for similar items in EconPapers)
JEL-codes: C61 D91 I21 (search for similar items in EconPapers)
Date: 2018
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Related works:
Working Paper: The Role of Time Preferences in Educational Decision Making (2016) Downloads
Working Paper: The Role of Time Preferences in Educational Decision Making (2016) Downloads
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