This paper considers how optimal education and tax policy depends on the risk properties of human capital. It is demonstrated that a key feature of human capital investments is whether they increase or decrease wage risk. In a benchmark model it is shown that this feature alone determines...

Justification for policies to encourage investments in education, particularly for individuals at the lower end of the ability distribution, may be provided by behavioural economics. We present a prototypical model where individuals who are potentially loss averse around their expected outcome...

This paper considers how optimal education and tax policy depends on the risk properties of human capital. It is demonstrated that a key feature of human capital investments is whether they increase or decrease wage risk. In a benchmark model it is shown that this feature alone determines...

Altruistic parents, who differ in income, make financial transfers to their children, who differ in ability. The children invest in post-compulsory education, subject to an endogenous credit constraint, and taking policy as given. There are two policy tools: a subsidy to those who participate in...

A link between social insurance and education policy is explored. Due to moral hazard full insurance against disability is not feasible. When high- and low-risk individuals can be identified, second-best social insurance system entails cross-subsidies from the low-risk group to the high-risk...

Justification for policies to encourage investments in education, particularly for individuals at the lower end of the ability distribution, may be provided by behavioural economics. We present a prototypical model where individuals who are potentially loss averse around their expected outcome...