Optimal student loans and graduate tax under moral hazard and adverse selection

• Autores: Robert J. Gary-Bobo, Alain Trannoy
• Localización: The Rand Journal of Economics, ISSN-e 1756-2171, Vol. 46, Nº. 3, 2015, págs. 546-576
• Idioma: inglés
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• Resumen

  • We characterize the set of second-best “menus” of student-loan contracts in an economy with risky labor-market outcomes, adverse selection, moral hazard, and risk aversion. We combine student loans with optimal income taxation. Second-best optima provide incomplete insurance because of moral hazard. Optimal repayments must be income contingent, or the income tax must comprise a graduate tax. Individuals are ex ante unequal because of differing probabilities of success, and ex post unequal, because taxation trades off incentives and redistribution. In addition, second-best optima exhibit an interim equalization property: the poststudy but prework expected utilities of newly graduated student types must be equal