Primary Education in the Ethiopian Highlands: Sibling’s effects, risk aversion, and diversification

This paper contributes to the knowledge about how educational investments are allocated across siblings within the household. More specifically I focus on investigating whether there are signs of diversification, formal schooling being a risky investment. The data used is unusual in that it includes the head of household’s risk preferences in addition to school-related and other information. This allows me to test whether older sibling’s education is differently related to school start and school progress in households with differently risk-averse heads, something that should be expected if there is any household level diversification. I find this to be the case with regard to the probability of school entry, but not of school progress. And, the diversification mechanism is not strong enough to dominate forces creating positive sibling dependency in education. Trying to evaluate what causes the positive siblings’ dependency I focus on economies of scale in education/sibling interaction and liquidity constraints and results points towards economies of scales being the important mechanism creating the positive siblings’ dependency.