Fostering Adult Education: A Laboratory Experiment on the efficient use of loans, grants and savings

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Fostering Adult Education A Laboratory
Experiment on the efficient use of loans, grants
and savings incentivesApril 2002 June 2002

• Canada Student Loans Directorate
• Applied Research Branch
• Human Resources Development Canada

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Fostering Adult Education A Laboratory
Experiment on the efficient use of loans, grants
and savings incentivesApril 2002 June 2002

• Cathleen Johnson
• CIRANO
• Claude Montmarquette
• University of Montreal and CIRANO 
• Catherine Eckel
• University of Texas at Dallas

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Why use experiments?

• Most policy design/analysis based on traditional
  empirical methodologies
• Outcome-based measures
• Survey questions
• Experimental measures of preferences provide
  additional information
• May be more reliable than survey information
• Decisions involve real money, costly decisions
• Real, not hypothetical decisions
• Control for situational variation by placing
  subjects in identical settings

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Overall project Using experiments to calibrate
policy

• This project was designed to address a particular
  set of specific policy issues for Canada Student
  Loans
• What will be the participation rates for various
  types of subsidy?
• What are displacement or windfall gain effects?
• What are the barriers to education?
• Can information about the labor market improve
  decision making about post-secondary education?
• Premise The effectiveness of a policy can be
  enhanced substantially if it is tailored to the
  preferences of the target population
• Allows fine tuning of policy parameters
• Allows estimation of take-up rate
• Ex Poor Savings

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The Experiment(lab experiment with nonstandard
subject pool)

• Focus of the full study is on four sets of
  measures
• 1. Preference measures
• consumption over time
• risky choice alternatives
• 2. Survey measures demographics and attitudes
• 3. Numeracy
• 4. Willingness to invest in post-secondary
  eduation
• Grants
• Loans (regular and income-sensitive repayment
  ISR)
• Matched-savings grants

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Protocol

• 20 Show-up fee
• Practice Choice Questions
• Bingo balls used for random draw process
• Dice were used for gambles
• As individuals finished they left the room and
  were paid privately for one decision

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Participants
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Preference Measures Risk aversion

• Measured using simple task
• Ss choose which among 6 50/50 gambles that they
  wish to play

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Histogram of risk decisions
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Decision

• Choice A
• 120.00 for sure
• Choice B
• 80 chance for 175 and
• 20 chance for 0

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Preference Measures Patience

• Ss choose among amounts of money at an earlier
  time and larger amounts at a later time.
• Choices vary in terms of
• rates of return
• wait times
• Front-end-delay

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Summary of Time Preference Choices
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Patient Choices (All Decisions)
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Patient Choices One month FED, 1 year wait
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Determinants of the Proportion of Subjects
Choosing Early Payoff

• Delaying alternative payoff reduces the incentive
  to pick the latest alternative
• Increasing the rate of return induces subjects to
  delay reward
• Absolute difference encourages the subjects to
  delay their reward

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Survey measures

• Demographics
• Age, gender, income
• Labor market and educational status
• Attitudinal measures
• Planning, debt
• Barriers to education
• Skills, dispositional, situational

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Cash v. Investment Choice

• Cash alternative made the choice of investment
  costly to the subject
• Results used to calculate elasticities of demand
  for education with different types of subsidy
• Determine relative preference for education for
  each participant

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Takeup Rates for 1,000 in Educational Financing
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Analysis - Education Preference

• Overall intensity of preference for education
• experimental estimates None, some, moderate,
  strong, very strong preference for education
  (D75-D78)
• Is a function of
• Individual Characteristics

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Individual characteristics and their sources
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Determinants of Choosing 1000 Part-time Grant
Over Cash
Ordered Probit, 801 observations)

• Labour Force attachment
• Immigrants, disabled
• Willingness to save (decision)
• Positive attitude with respect to Education and
  LM
• Mathematical Competency
• PSE experience

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Determinants of Choosing 1000 Part-time Grant
Over Cash
(Ordered Probit, 80 observations)

• Age
• Employee with education supplement
• married
• Children (older)
• HS equivalency

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Probabilities of Investing in Education
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Probabilities of Investing in Education
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Determinants of Choosing 1000Part-time Grant
Over Cash for High School Students
(Ordered Probit, 80 observations)

• Willingness to save ( Decision)
• Plan for future (Temporal orientation scale)
• Positive attitude with respect to Education and
  LM
• Burdened by debt

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Probabilities of Investing in Education High
School Students
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Probabilities of Investing in Education High
School Students
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Proportion of urban participants that chose
education financing over 100 cash
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Determinants of choosing 1000 Grant Over Cash
(Ordered Probit, 801 observations)

• Labour Force attachment
• Immigrants, disabled
• Willingness to save (decision)
• Positive attitude with respect to Education and
  LM
• Mathematical Competency
• PSE experience

• Age
• Employee with education supplement
• married
• Children (older)
• HS equivalency

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Factors related to positive attitude towards LM

• Employer subsidy, Age, Men
• Good math competency (not the best!)
• Family history of saving for EDU
• Attitude LOC, temporal orientation
• High market understanding
• High school equivalency
• Student debt

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Labor Market Information Session

• How does information influence
• Knowledge?
• Attitudes?
• Investment?

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Labor Market Information Session

• How does information influence
• Knowledge?
• Attitudes?
• Investment?

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Determinants of choosing more education after the
LMI session
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Determinants of choosing more education after the
LMI session

• Probability of taking choosing more education for
  the young participants goes up by 15
• From 42 to 57

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What have we learned so far?

• Individual characteristics, such as time
  preference and risk preferences, can explain
  variability in the decision making process as
  much as demographic and social characteristics.
• Overall, participants were sensitive different
  levels of incentives and different forms of
  financing
• LMI interventions can make a difference
• Study directly impacted Provincial Loan Programs

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The Next Steps

• How does information influence knowledge and
  attitudes?
• What influence did ability play in the change of
  attitude?
• There is the problem of potential selection bias
  in the choice of the sub sample of individuals to
  participate in the LMI intervention. By focusing
  on those with poor initial information of the
  labour market, did we undermine the effect of the
  LMI intervention?