Abstract

We develop a simple human capital model for optimum schooling length when earnings are stockastic, and highlight the pivotal role of risk attitudes and the schooling gradient of earnings risk. We use Spanish data to document the gradient and to estimate individual response to earnings risk in deciding on attending university education, by measuring risk as the residual variance in regional earnings function. We Find that the Basic response is native but that in houleholds with lower risk aversion, the response will be dampened substantially and may even be reversed to positive.