Discussion Paper No.1308

Abstract :
In Japan and other East Asian societies, household educational expenditures per child (especially private tutoring expenditures) have increased sharply, perhaps to an excessive degree. This paper suggests a rationale for many families to invest extensively in education, while other relevant literature rarely addresses the possibility of excessive educational investment. Introducing altruism and liquidity constraints into a model in which parent and child interact for determining investment in the child’s education, we show that educational investment may be excessive unless the family is profoundly liquidity-constrained. Our result extends previous findings incorporating the Samaritan’s Dilemma (Buchanan, 1975; Lindbeck and Weibull, 1988). We also discuss public policy designed to remedy the inefficiency in educational investment.

JEL classification: I2; D1
Keywords : Altruism; Liquidity constraint; Education; Intergenerational transfers; Samaritan’s Dilemma