Earnings Dispersion, Risk Aversion and Education

Christian Belzil and Jorgen Hansen

CIRANO Working Papers from CIRANO

Abstract: We estimate a dynamic programming model of schooling decisions in which the degree of risk aversion can be inferred from schooling decisions. In our model, individuals are heterogeneous with respect to school and market abilities but homogeneous with respect to the degree of risk aversion. We allow endogenous schooling attainments to affect the level of risk experienced in labor market earnings through wage dispersion and employment rate dispersion. We find a low degree of relative risk aversion (0.9282) and the estimates indicate that both wage and employment rate dispersions decrease significantly with schooling attainments. We find that a counterfactual increase in risk aversion will increase schooling attainments. Finally, the low degree of risk aversion implies that an increase in earnings dispersion would have little effect on schooling attainments. Nous estimons un modèle de programmation dynamique des choix d'éducation dans lequel le degré d'aversion au risque peut être estimé à partir des choix de scolarisation. Dans notre modèle, les individus sont hétérogènes quant à leurs capacités scolaires et aptitudes sur le marché de l'emploi, mais homogènes en ce qui concerne le degré d'aversion au risque. Nous laissons les niveaux scolaires endogènes influencer le niveau de risque concernant les revenus d'emploi, et ce, à travers la dispersion des salaires et la dispersion du taux d'emploi. Nous trouvons un faible degré d'aversion relative au risque (0,9282) et nos résultats indiquent que les taux de dispersion, aussi bien pour le salaire que pour le taux d'emploi, diminuent de façon significative avec le niveau de scolarisation. Nous trouvons qu'une augmentation contrefactuelle de l'aversion au risque va faire augmenter le niveau de scolarité atteint. Finalement, un niveau faible d'aversion au risque implique qu'une augmentation de la dispersion des revenus aurait peu d'impact sur le niveau de scolarisation.

Keywords: Dynamic Programming; Returns to Education; Risk Aversion; Human Capital; Earnings Dispersion; Programmation dynamique; Rendements de l'éducation; Aversion au risque; Capital humain; Dispersion des revenus (search for similar items in EconPapers)
JEL-codes: J2 J3 (search for similar items in EconPapers)
Date: 2002-02-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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https://cirano.qc.ca/files/publications/2002s-20.pdf

Related works:
Chapter: EARNINGS DISPERSION, RISK AVERSION AND EDUCATION (2004)
Working Paper: Earnings Dispersion, Risk Aversion and Education (2004)
Working Paper: Earnings Dispersion, Risk Aversion and Education (2004)
Working Paper: Earnings Dispersion, Risk Aversion and Education (2002)
Working Paper: Earnings Dispersion, Risk Aversion and Education (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2002s-20

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