Risk Preference and Child Learning outcomes: A Study on Ghana

Abstract Human capital investment is noted to increase labour market success and future welfare security. But empirical studies have established that investment in human capital formation is a risky venture. Consequently, the risk preference of funders is pivotal in influencing the optimal allocation of household’s scarce resources in educational investment. Against this backdrop, we leveraged the seventh round of Ghana Living Standards Survey data to explore the relationship between parental risk preference and child learning outcomes. The instrumental variable estimation technique was employed to solve the endogeneity problem associated with the two variables. We found that parental risk preference is a significant determinant of children’s learning outcomes in Ghana given that children from risk loving homes have better learning outcomes. In addition, risk loving homes have better learning outcomes for girls and public-school children compared to boys and private school attendees. Further, children from risk-loving female headed households have better learning outcomes compared to children from risk-loving male headed households. Finally, risk loving households spend more on the education of their children than risk averse households. Our empirical test also showed that household expenditure on child education is the channel through which risk preference influence the learning outcome of children. We therefore recommend that policy makers implement programs that induce risk loving attitudes in parents. JEL Classification: JELI22, JEL I20, JEL I21, JEL J24, JEL D81