Income Share Agreements and Student Preferences
1 online resource (54 pages) : PDF
University of North Carolina at Charlotte
Income share agreements are increasingly discussed as an alternative to student loans.This paper seeks to measure the level of interest among students for various incomeshare agreement offers, and to explore the possibility of adverse selection. Usingsurvey data, the paper's analysis focuses primarily on whether student forecasts oftheir own incomes, self-reported risk attitudes, and grades have any predictive effecton their likelihood of interest. If lower income forecasts or lower grades correlatewith higher interest in the offers, adverse selection may be present. However, be-cause income-share agreements could be thought of as providing to students insuranceagainst poorer-than-expected outcomes, risk aversion could play a role in dampeningadverse selection by attracting a broad cross-section of students. The analysis findsthat a student's forecast of his or her income correlates significantly with interest inthe offers. If one assumes that students have an information advantage concerningtheir future incomes, adverse selection is present. Academic performance, measuredby grades, lacked a meaningful relationship with likelihood of interest in the offer. Ifgrades are better predictors of future income than student guesses, the results sug-gest adverse selection may not be an obstacle to the sustainability of income shareagreements. The risk attitude measure had surprising predictive effects, with highlevels of risk aversion corresponding to lower likelihood of interest in the offer. Thisoutcome suggests that one obstacle income share agreements may need to overcomeis unfamiliarity, and that framing the offers as a form of insurance may attract moreparticipants.
ADVERSE SELECTIONINCOME SHARE AGREEMENT
Schulkind, LisaAmato, Louis
Thesis (M.S.)--University of North Carolina at Charlotte, 2017.
This Item is protected by copyright and/or related rights. You are free to use this Item in any way that is permitted by the copyright and related rights legislation that applies to your use. For other uses you need to obtain permission from the rights-holder(s). For additional information, see http://rightsstatements.org/page/InC/1.0/.
Copyright is held by the author unless otherwise indicated.