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Towards an understanding of parents' expectations of the returns on education in developing countries

14th National Competition for Economic Research Grants

Economics of Education

Senior Researcher : Alex Armand

Research Centre or Institution : Universidad de Navarra. Pamplona.


When it comes to taking decisions on investment in human capital, it is reasonable to believe that children and/or their parents face situations in which they have limited or imperfect information on future income possibilities. For this reason, it is vital to understand how prior expectations affect education decisions and how those expectations evolve over time, because many social policies in the world ignore the information component when they are aimed at low-income households. The understanding of this mechanism is especially important in developed and developing countries where the outcome on the labour market is very uncertain, for example due to high unemployment rates. In fact, the conditions of the labour market affecting adults may have direct effects, due to reduced income, as well as indirect effects, if the expectations are affected and these influence the decisions regarding their children's education. However, there is currently no evidence of these indirect effects on the education economy. The aim of this proposal is to study these mechanisms in order to understand the theoretical and empirical link between expectations and education decisions. For this purpose, this research proposal intends to use a unique database on subjective expectations of performance in secondary education. The data were gathered in Macedonia as part of a programme for the evaluation of Conditional Cash Transfers at different times between 2010 and 2013. The research project contributes to the growing literature relating decisions about education to information on the perception agents have regarding the returns on education in developing countries. This is particularly important in these countries because the measured returns on education are high (greater increases in income the higher the level of education reached) and, nonetheless, school enrolment remains low (Jensen 2010, Attanasio and Kaufmann 2009). The aim of this research project is to understand how parents' subjective expectations are formed, how they evolve over time, and whether those expectations explain future decisions on their children's education, using the longitudinal dimension of the data gathered. This enables us to resolve some of the main econometric challenges associated in the literature on this subject with the use of subjective expectations in economic decision-making models. The longitudinal dimension also enables us to compare the presence of cognitive dissonance biases when declaring subjective expectations, which has not been possible up to now in the current literature on parents' expectations.

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