Asymmetric information, risk and higher education nance: First draft. Please do not quote without permission

• Autores: Elena del Rey Canteli
• Localización: XVII Encuentro de Economía Pública: políticas públicas ante la crisis, 2010, pág. 25
• Idioma: inglés
• Texto completo no disponible (Saber más ...)
• Resumen

  • Education is a risky investment. Financial arrangements that insure students against the eventuality of a bad outcome are likely to increase welfare. In this note we consider a continuum of student loan repayment arrangements going from paying only in case of success to paying a xed proportion of earnings in any eventuality. We show that student welfare is maximized when students of di erent ability self-select into di erent schemes. Low ability individuals choose to pay back in case of success only. Conse- quently, they pay relatively large amounts if that is the case. High ability individuals pay less in case of success but accept to also pay a proportional tax on earnings whether they fail or succeed. This allows to separate them from low ability types.