Human Capital Investment by the Poor : Informing Policy with Laboratory and Field Experiments

Returns to investment in human capital have been high in the last half of the 20th century, but at the bottom of the income distribution, the decision to invest in education beyond high school is still seen as complex and risky (Chen, 2002). To the educated, investment in education seems the obvious and only way to escape poverty, yet the poor avoid such investments. We report the results of a study designed to understand why the poor fail to invest in human capital. The purpose of the study is to collect information that can be used to design a policy to induce the poor to save and invest in human capital. We use laboratory experimental methodology to measure the preferences and choices of the target population of a proposed government policy. Note that our purpose is not to evaluate such a policy; in particular, we do not attempt to discover the return to additional human capital investment. Instead, we focus on preferences for education, and assess the response of the choices of the poor population to various subsidy levels