2008a), “Can Future Uncertainty Keep Children out of School?”, Working paper no 2008-06

2008 There is little doubt in the literature, that poverty and liquidity constraints can drive children out of school and into child labour in developing countries. But are there other important explanations for low primary school enrolment rates? The child labour and schooling literature often ignores that uncertainty about future returns results in a need for risk diversi\u85cation, that children function as old-age security providers when there are no available pension systems, that the human capital investment decision of one child is likely to be inuenced by that of his/her siblings, and that rural parents face a choice of investing in either speci\u85c or general human capital of their children. In this paper, I investigate the e¤ects of future income uncertainty on the joint human capital investment decision of children in a household. I develop and calibrate a simple illustrative human capital portfolio model and show that existing levels of uncertainty can indeed result in less than full school enrolment within a household, even in a world of perfect credit markets. The paper thus o¤ers an alternative explanation for why it might be optimal for rural parents not to send all of their children to school