Code for: Opportunity Unraveled: Private Information and the Missing Markets for Financing Human Capital

Principal Investigator(s): View help for Principal Investigator(s) Daniel Herbst, University of Arizona; Nathaniel Hendren, Massachusetts Institute of Technology

Version: View help for Version V1

Name	File Type	Size	Last Modified
code			02/24/2024 08:26:PM
data			02/20/2024 11:22:PM
output			02/20/2024 11:21:PM
README.pdf	application/pdf	166.7 KB	10/10/2023 09:22:AM

Project Citation:

Herbst, Daniel, and Hendren, Nathaniel. Code for: Opportunity Unraveled: Private Information and the Missing Markets for Financing Human Capital. Nashville, TN: American Economic Association [publisher], 2024. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2024-05-28. https://doi.org/10.3886/E198510V1

Project Description

Summary: We argue adverse selection has unraveled private markets for financial contracts that mitigate college-going risks. We use survey data on beliefs to quantify the threat of adverse selection in markets for equity contracts and several state-contingent debt contracts. We estimate that a typical college-goer would have to repay $1.64 in present value for every $1 of equity financing to sustain profitable contracts for financiers, more than they are willing to accept. We discuss why moral hazard, biased beliefs, and the availability of outside credit options are less likely to explain the absence of these markets, and discuss the welfare implications.

Scope of Project

Subject Terms: asymmetric information; adverse selection; student loans; household finance; college

JEL Classification:
      D82 Asymmetric and Private Information; Mechanism Design
      G52 Household Finance: Insurance
      I22 Educational Finance; Financial Aid

Geographic Coverage: United States

Time Period(s): 2012 – 2017

Universe: First-time US college enrollees entering their first year in 2011-2012

Data Type(s): administrative records data; survey data

Methodology

Data Source: Most data come from National Center of Education Statistics BPS2012, B&B2008, and B&B2016 studies. These data are merged from administrative FAFSA records, administrative federal loan data (NSLDS), and survey data.

Unit(s) of Observation: individual

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Published Versions

V1 [2024-05-28]

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