Income Risk and Household Schooling Decisions in Burkina Faso

I study the effects of income uncertainty on household schooling decisions. Households with more volatile incomes have a greater incentive to build a buffer stock to insure against unforeseen adverse shocks, and non-enrollment can be part of such a strategy. I use data from rural Burkina Faso, where school attainment is low and income shocks are frequent, to show that income uncertainty reduces several educational outcomes, including enrollment, education expenditures, and years of education completed. The findings suggest that income uncertainty has larger welfare costs in terms of human capital than is implied by studies that only focus on realized income shocks. (C) 2012 Elsevier Ltd. All rights reserved.