FEEM working papers "Note di lavoro" series
2019 .007

Present Bias and Underinvestment in Education? Long-run Effects of Childhood Exposure to Booms in Colombia


Authors: Bladimir Carrillo
Series: Economic Theory
Editor: Matteo Manera
Keywords: Coffee Price Shocks, Transitory Income Shocks, Human Capital Accumulation, Opportunity Cost of Schooling, Long-run Impacts, Schooling
JEL n.: J24, O12, O13

Abstract

This paper examines the long-run impacts of income shocks by exploiting variation in coffee cultivation patterns within Colombia and world coffee prices during cohorts' school-going years in a differences-in-differences framework. The results indicate that cohorts who faced higher returns to coffee-related work during school-going years completed fewer years of schooling and have lower income in adulthood. These findings suggest that leaving school during temporary booms results in a significant loss of long-term income. This is consistent with the possibility that students may ignore or heavily discount the future consequences of dropout decisions when faced with immediate income gains.

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Suggested citation: Carrillo, B. (2019), 'Present Bias and Underinvestment in Education? Long-run Effects of Childhood Exposure to Booms in Colombia', Nota di Lavoro 7.2019, Milano, Italy: Fondazione Eni Enrico Mattei

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