Loss aversion, education, and intergenerational mobility

Liam Malloy

Education Economics, 2015, vol. 23, issue 3, 318-337

Abstract: Existing empirical work looking at the effects of parental income on IQ, schooling, wealth, race, and personality is only able to explain about half of the observed intergenerational income elasticity. This paper provides a possible behavioral explanation for this elasticity in which heterogeneous agents in sequential generations choose their education levels in the face of loss-averse preferences and weak borrowing constraints. These borrowing-constrained agents make education investment choices in part to avoid consumption losses rather than to maximize lifetime resources. The model generates a positive intergenerational income elasticity even when there are functioning capital markets to finance education investments. I find empirical support for the J-shape education decision rule generated by the model and show that it is mostly successful in matching the asymmetric intergenerational transition rates between income quintiles of white families.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1080/09645292.2013.823909 (text/html)
Access to full text is restricted to subscribers.

Related works:
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:taf:edecon:v:23:y:2015:i:3:p:318-337

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/CEDE20

DOI: 10.1080/09645292.2013.823909

Access Statistics for this article

Education Economics is currently edited by Caren Wareing and Steve Bradley

More articles in Education Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().