Caetano, GregorioPatrinos, Harry A.Palacios, Miguel2012-03-192012-03-192011-07-01https://hdl.handle.net/10986/3499This paper reports the results of an experiment designed to test for the presence of debt aversion. The population who participated in the experiment were recent financial aid candidates and the experiment focused on student loans. The goal is to shed new light on different aspects of the perceptions with respect to debt. These perceptions can prevent agents from choosing an optimal portfolio or from undertaking attractive investment opportunities, such as in education. The study design disentangles two types of debt aversion: one that is studied in the previous literature, which encompasses both framing and labeling effects, and another that controls for framing effects and identifies only what we denote labeling debt aversion. The results suggest that participants in the experiment exhibit debt aversion, and most of the debt aversion is due to labeling effects. Labeling a contract as a "loan"' decreases its probability of being chosen over a financially equivalent contract by more than 8 percent. The analysis also provides evidence that students are willing to pay a premium of about 4 percent of the financed value to avoid a contract labeled as debt.CC BY 3.0 IGOACCESS TO HIGHER EDUCATIONAMOUNT OF DEBTAMOUNT OF RISKASSET PRICESASSET PRICINGASSETSASYMMETRIC INFORMATIONBANKRUPTCYBANKRUPTCY LAWSBORROWERBORROWINGCAPITAL INVESTMENTCAPITAL RETURNSCAREERCAREER CHOICECOLLATERALCOST-SHARINGCREDIT CONSTRAINTSCREDIT INSTRUMENTDEBTDEBT BURDENDEBT CONTRACTDEMOGRAPHIC CHARACTERISTICSDEPENDENTDEVELOPING COUNTRIESDEVELOPMENT POLICYEARNINGSECONOMIC RESEARCHECONOMICS LITERATUREEDUCATION COSTSEDUCATIONAL FINANCEEMPLOYMENTEQUITY INVESTMENTSFINANCIAL AIDFINANCIAL CONTRACTFINANCIAL INSTITUTIONFINANCIAL INSTRUMENTFINANCIAL TRANSACTIONFLEXIBLE LOANFUTURE RESEARCHGENDERHIGH SCHOOL GRADUATESHIGHER EDUCATIONHIGHER EDUCATION FINANCINGHUMAN CAPITALHUMAN CAPITAL INVESTMENTHUMAN DEVELOPMENTIMPACT OF DEBTINCOMEINCOME CONTINGENT LOANSINCOME LEVELINCOME LEVELSINCOME-CONTINGENTINCOMPLETE MARKETSINFORMATION ASYMMETRYINTERNATIONAL BANKINVESTMENT DECISIONINVESTMENT DECISIONSINVESTMENT OPPORTUNITIESINVESTMENTS IN EDUCATIONLEGAL BARRIERSLEVELS OF EDUCATIONLOAN CONTRACTLOANS TO STUDENTSLOCAL CURRENCIESLOCAL CURRENCYLOTTERYLOW-INCOME STUDENTSMONETARY VALUEOPEN ACCESSPAPERSPAYOFFSPORTFOLIOPORTFOLIO CHOICEPOTENTIAL BORROWERSPOTENTIAL INVESTORSPUBLIC EDUCATIONPUBLIC FINANCERETURNRISK-AVERSE INDIVIDUALSSHAREHOLDERSTUDENT LOANSTUDENT LOANSTANGIBLE ASSETTITLETRANSACTIONTRANSFER RISKTYPES OF DEBTUNIVERSITIESVALUE OF DEBTWAGESWorld Bank10.1596/1813-9450-5737