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Discount Rates of Children and High School Graduation

Marco Castillo, Jeffrey Jordan () and Ragan Petrie ()

Economic Journal, 2019, vol. 129, issue 619, 1153-1181

Abstract: We present direct evidence that children who are unwilling to wait for a larger reward and instead prefer a small one earlier (i.e. they have a higher discount rate) are less likely to graduate from high school. Using an incentivised experiment to measure the discount rates of 878 children, we find large effects on human capital accumulation – a one standard deviation increase in the discount rate decreases the probability of graduating from high school by four percentage points. Importantly, the impact of a child's discount rate is distinct from behavioural problems (e.g. disciplinary referrals), academic achievement, risk attitudes, demographics and household environment. Consistent with the existence of non-pecuniary costs to finishing high school, impatient children with poor academic achievement are significantly less likely to graduate than impatient children with high achievement.

Date: 2019
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