Opportunity unraveled: Private information and the missing markets for financing human capital
By: Herbst, Daniel and Hendren, Nathaniel
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Material type: 
BookPublisher: The American Economic Review Description: 114(7), Jul, 2024: p.2024-2072.Subject(s): Economics, Higher Education Financing, Adverse Selection, Equity Contracts, State-Contingent Debt, Risk Aversion, Moral Hazard, Biased Beliefs, Credit Options, Welfare Gains, Subsidies, Behavioral Economics, Education Finance
In:
The American Economic ReviewSummary: We examine whether adverse selection has unraveled private markets for equity and state-contingent debt contracts for financing higher education. Using survey data on beliefs, we show a typical college-goer would have to repay $1.64 in present value for every $1 of financing to overcome adverse selection in an equity market. We find that risk-averse college-goers are not willing to accept these terms, so markets unravel. We discuss why moral hazard, biased beliefs, and outside credit options are less likely to explain the absence of these markets. We quantify the welfare gains for subsidizing equity-like contracts that mitigate college-going risks.- Reproduced
https://www.aeaweb.org/articles?id=10.1257/aer.20211653
| Item type | Current location | Call number | Vol info | Status | Date due | Barcode |
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Articles
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Indian Institute of Public Administration | 114(7), Jul, 2024: p.2024-2072 | Available | AR133272 |
We examine whether adverse selection has unraveled private markets for equity and state-contingent debt contracts for financing higher education. Using survey data on beliefs, we show a typical college-goer would have to repay $1.64 in present value for every $1 of financing to overcome adverse selection in an equity market. We find that risk-averse college-goers are not willing to accept these terms, so markets unravel. We discuss why moral hazard, biased beliefs, and outside credit options are less likely to explain the absence of these markets. We quantify the welfare gains for subsidizing equity-like contracts that mitigate college-going risks.- Reproduced
https://www.aeaweb.org/articles?id=10.1257/aer.20211653
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