Altruism, Liquidity Constraint, and Investment in Education

In Japan and other East Asian societies, household educational expenditures per child (especially private tutoring expenditures) have increased sharply, perhaps to an excessive degree. This paper suggests a rationale for many families to invest extensively in education, whereas other relevant literature rarely addresses the possibility of excessive educational investment. Introducing altruism and liquidity constraints into a model in which parent and child interact for determining investment in the child's education, we show that educational investment may be excessive unless the family is profoundly liquidity‐constrained. Our result extends previous findings incorporating the Samaritan's Dilemma. We also discuss public policy designed to remedy the inefficiency in educational investment.