Publication: Inequality of Opportunity and Investment Choices
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Date
2023-09-19
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Published
2023-09-19
Author(s)
Brock, J. Michelle
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Abstract
Inequality of opportunity leads to misallocation of human capital and can affect economies via its impact on individual economic decision making. This paper studies the impact of inequality of opportunity on investment, using a laboratory experiment. The experiment randomized inequality of opportunity, then subjects chose to invest in a risky asset or savings. The results suggest that inequality of opportunity impacts investment choices only for people who are penalized by their circumstances and only once they learn the impact of inequality of opportunity on their relative position in the income distribution. This disadvantaged group invests more often and invests higher shares of their earnings than the control and advantaged groups. The fact that both inequality of opportunity and knowledge of relative position need to be present for the impact on investment to materialize points to the importance of peer effects. More broadly, the paper highlights the relevance of social preferences for understanding the effects of inequality of opportunity on individual decision making.
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“Brock, J. Michelle; Bussolo, Maurizio. 2023. Inequality of Opportunity and Investment Choices. Policy Research Working Paper; 10569. © World Bank. http://hdl.handle.net/10986/40366 License: CC BY 3.0 IGO.”
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