“From Subsidies to Loans: The Effects of College Financing Reform on Students’ Secondary School Choices”, with Jan Kabátek
“Quantifying Aspirational Poverty Traps”, with Nicolas Salamanca.
Abstract: Recent theoretical findings from behavioral economics argue that, aside from classical poverty traps, there exist aspirational poverty traps, a specific type of behavioral poverty traps in which low–effort equilibria are perpetuated not by people’s lack of resources but by their imperfect aspiration–formation mechanisms. These findings have important implications for the design of anti-poverty programs, since they suggest that some people can be pulled out of poverty by shifting their aspirations – an alternative and arguably cheaper approach than traditional monetary transfers. There is, however, little empirical evidence of the existence and economic relevance of these aspirational poverty traps. In this paper, we derive testable predictions which allow us to quantify the potential size of aspirational poverty traps using existing data from large-scale anti-poverty program evaluations. Using data from the National Longitudinal Survey of Youth 1979 (NLSY79), we aim to assess the size of the different populations which can be subject to aspirational poverty traps. We also aim to characterize these populations so it is easier to target them with aspiration-shifting mechanisms. Finally, we discuss how our results can be extended to inform the design of potentially more cost-effective welfare policies.
JEL Codes: C13, D03, J60
Keywords: behavioral agents; anti-poverty programs; threshold regression
“Drivers of Educational Decisions: Risk Preferences, Information Differentials and the Conditional Variance of Wages”
Abstract: High-achieving students from low-income families apply less to college compared to richer peers. Important explanations are differences in preferences and in information, founded on the existence of a steep socioeconomic gradient in information. This paper uses a variance decomposition of wages to test whether the college gap can be explained by differences in information and/or differences in risk preferences. I test the hypothesis of differences in information by looking at the patterns of unobserved heterogeneity, and the hypothesis of differences in risk preferences by looking at the patterns of wage uncertainty. Using the NLSY79, I find evidence that within any educational groups, students from different backgrounds are subject to different amounts of wage uncertainty, which makes it difficult to conclude that low-income students are more risk averse. I also find evidence of a gradient in information. This finding suggests that policy-makers should focus on interventions providing students with more information about education and occupations.
JEL Code: J31, J24, J62
Keywords: educational choices, risk preferences, information