Risks and investment in education

Evidence shows that the educational outcomes of children to a large extent depend on their parents' background, their resources, and their socio-economic status. Parental choice in terms of investment in the education of their children is a major determinant of the educational attainment of the children and their future earning capacity. Low educational attainment in developing countries to a large extent can be attributed to the inability and/or the unwillingness of parents to invest in the education of their children. In order to improve educational outcomes and develop and implement appropriate policies, it is crucial to understand the major barriers faced by poor parents while making educational decisions and the environment in which they operate.

While making educational investment decisions, parents face many risks. The future earnings of the parents may be unpredictable.  In addition, parents may have imperfect information about the ability and motivation of their children and future labour market conditions. Most households in developing countries live in an environment with limited access to formal insurance mechanisms. These risks can be a major factor affecting parental investment in the education of their children.

In this project, researchers will develop an analytical model to analyse the effects of various kinds of risk on parental investment in the education of children. In addition, researchers plan to empirically examine major factors affecting investment in education in Bihar. In particular, they will focus on analyzing the role of parental background and resources, and social and cultural factors including caste and gender. Bihar is one of the poorest states in India with very high poverty rates and low educational attainment. Densely populated with a low level of urbanisation and a high level of migration, financial development is low and the opportunities to diversify risks are limited.  This project will contribute to both the theoretical and the empirical literature on the demand for education. It will yield a number of useful insights for policymakers, non-governmental organisations, and parents.