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Education, Disappointment and Optimal Policy

Dan Anderberg () and Claudia Cerrone ()

No 5141, CESifo Working Paper Series from CESifo

Abstract: Justification for policies to encourage investments in education, particularly for individuals at the lower end of the ability distribution, may be provided by behavioural economics. We present a prototypical model where individuals who are potentially loss averse around their expected outcome make risky investments in education and we draw on optimal tax theory to explore the design of policy. The model highlights the critical roles played by (i) the relationship between behavioural risk preferences, standard risk aversion and labour supply behaviour, (ii) the risk properties of education, and (iii) the degree of observability of individual academic ability.

Keywords: education; risk; disappointment; optimal taxation (search for similar items in EconPapers)
JEL-codes: D81 H21 I21 (search for similar items in EconPapers)
Date: 2014
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