Optimal Investment in Schooling When Incomes Are Risky

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Abstract
This paper we specify and estimate a simple, empirically motivatedmodel of risk and schooling investment in the presence of arudimentary capital market. A utility function with constant relativerisk aversion is assumed. Individuals are allowed to borrow in order toconsume while in school but then must repay in a set of fixed installmentsafter discontinuing school. Empirically, even a moderate abilityto borrow greatly reduces the "concavity effect" on rates of return toschooling

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