Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/115514
Choosing the type of income-contingent loan: risk-sharing versus risk-pooling
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This paper analyses the choice between risk-sharing and risk-pooling income-contingent loans for higher education of risk-averse individuals who differ in their ability to benefit from education and inherited wealth. The paper identifies the possible outcomes of a majority vote between the two income-contingent schemes and provides several examples where the risk-pooling income contingent loan is preferred. The paper then discusses the implications on participation and voting outcomes if successful graduates are mobile and provides examples where the riskpooling incomecontingent loan remains being preferred. Risk-pooling schemes can however be prone to adverse selection problems, particularly if students are mobile. The paper explores the implications of allowing students to opt out of the riskpooling income-contingent loan for a pure loan. It shows that risk-pooling income-contingent loans can be sustained even when some students opt out.
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REY CANTELI, Elena del and RACIONERO, María. Choosing the type of income-contingent loan: risk-sharing versus risk-pooling. IEB Working Paper 2014/07. [consulted: 17 of August of 2026]. Available at: https://hdl.handle.net/2445/115514