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The Role of Time Preferences in Educational Decision Making

Aufsätze referiert extern - Web of Science

Daniel Kemptner, Songül Tolan

In: Economics of Education Review 67 (2018), S. 25-39


We analyze the implication of time-inconsistent preferences in educational decision making and corresponding policies using a structural dynamic choice model. We make two important research contributions. First, we estimate our model using data from the German Socioeconomic Panel (soep) and provide quantitative evidence for time-inconsistent behavior in educational decision making. Second, we evaluate the relevance of time-inconsistent behavior for the effectiveness of education policies. For this purpose, we simulate policies where time preferences may play an important role: (1) an increase in the state grant for students as a way to affect short-term costs while at school and (2) an increase in the state grant as a loan that must be paid back after education is completed. We find substantial differences in the educational outcomes when comparing them to the outcomes based on a model specification with exponential discounting. Hence, the common assumption of exponential discounting in educational decisions may be too restrictive.

JEL-Classification: C61;D91;I21
Keywords: Time preferences, Hyperbolic discounting, Structural estimation, Dynamic discrete choice, Education