Why do German students reject free money?

Figures & data

Table 1. List of Parameters.

Parameter	Interpretation	Value
$\alpha$	Risk aversion	0.9 (high) or −1 (low)
$\rho$	Preference for intertemporal consumption smoothing	0.5
$\text{β}$	Time preference rate	1
${\overline{\pi }}_1$	Income period 1	1 to 4
${\overline{\pi }}_2$	Income period 2	20
$c$	Cost of applying for student aid	1
$x$	Information frictions	0.75 or 0.375
$a$	Student aid in case of application	1.5

Note: Income ${\overline{\pi }}_1$ and ${\overline{\pi }}_2$, student aid $a$ and costs $c$ are in 100 EUR.

Figure 1. Prob (no application) for students with high risk aversion $\alpha =0.9$ or low risk aversion ($\alpha =-1$) and imprecise ($x=0.75$, ‘no sibling’) or more precise ($x=0.375$, ‘sibling’) signals.

Figure 2. The effect of a less precise signal on the probability to decline student aid for students with high risk aversion $\left(\alpha =0.9\right)$ or low risk aversion $(\alpha =-1)$.

Table 2. Simulation results.

BAföG recipient	Eligibility status
	Not eligible	Eligible	Total
No	2,207	985	3,192
Yes	370	495	865
Total	2,577	1,480	4,057

Source: GSOEP data 2001–2013.

Table 3. Descriptive statistics.

Variable	Mean	SD	Min.	Max.
Dependent
NoBAföG	0.66	0.47	0	1
Explanatory
Female	0.49	0.5	0	1
Age	23.36	2.38	17	30
East Germany	0.33	0.47	0	1
Migration background	0.27	0.45	0	1
Parent(s) has/have university degree	0.47	0.5	0	1
Gross parental labor income (in 100 EUR)	45.88	14.55	12.4	115.6
Student income (in 100 EUR)	2.28	2.5	0	17.71
Less risk averse	0.47	0.5	0	1
Siblings receiving BAföG	0.1	0.3	0	1
Household pays back monthly credit	0.22	0.41	0	1
Lives with at least one parent	0.69	0.46	0	1
Observations $\left(=N\right)$	988
Students $\left(=n\right)$	412

Source: GSOEP data 2001–2013.Notes: Income measured on a monthly basis. The siblings variable only equals one if students have siblings who also received BAföG during the observation period.

Table 4. Estimation results.

	(1) Pooled probit		(2) CRE probit
	Coeff.	AME	Coeff.	AME
Female	−0.130 (0.122)	−0.038 (0.036)	−0.239 (0.273)	−0.040 (0.046)
Age	0.113*** (0.026)	0.033*** (0.007)	0.526*** (0.089)	0.088*** (0.013)
East	−0.485*** (0.146)	−0.142*** (0.042)	−1.857* (0.856)	−0.312* (0.139)
Migration background	−0.252 (0.160)	−0.073 (0.047)	−0.159 (0.348)	−0.027 (0.059)
Information & Risk
Parents have university degree	−0.038 (0.135)	−0.011 (0.039)	0.138 (0.297)	0.023 (0.050)
Parental gross labor income (log)	1.179*** (0.214)	0.344*** (0.057)	1.091 (0.899)	0.183 (0.150)
Highly risk-averse	−1.333* (0.520)	0.122** (0.037)	−2.058* (0.853)	0.142** (0.046)
No sibling receives BAföG	0.103 (0.307)	0.305*** (0.059)	0.032 (0.545)	0.217* (0.084)
Highly risk-averse x No sibling receives BAföG	1.740** (0.553)		2.974*** (0.875)
Own income	−0.126 (0.116)	0.025*** (0.007)	−0.064 (0.259)	0.022* (0.010)
Highly risk-averse x Own income	0.494** (0.177)		0.953* (0.372)
No sibling receives BAföG x Own income	0.190 (0.120)		0.151 (0.258)
Highly risk-averse x No sibling receives BAföG x own income	−0.456* (0.188)		−0.919* (0.382)
Debt Aversion
Household pays back credit	−0.237+ (0.141)	−0.069+ (0.041)	−0.038 (0.281)	−0.006 (0.047)
Lives with at least one parent	0.388** (0.146)	0.113** (0.042)	0.483 (0.424)	0.081 (0.071)
Year controls	Yes		Yes
Mean time variant variables	No		Yes
Pseudo $R^2$	0.195
$\rho$			0.780
${\sigma }_c$			1.881
Observations $\left(=N\right)$	988		988
Students $\left(=n\right)$		412

Source: GSOEP data 2001–2013.

Notes: Income measured on a monthly basis, (own) student income in 100 EUR. Also, the ‘no sibling receives BAföG variable’ includes students who have no siblings at all (during observation period). Robust standard errors in parentheses and significance given by + $p<0.10$,* $p<0.05$, **$p<0.01$,***$p<0.001$.

Table 5. AME's of having less information depending on the level of risk aversion.

	AME's of having no siblings receiving BAföG or not having any siblings at all
	High risk aversion	Low risk aversion
1. at income = 100 EUR	0.500*** (0.098)	0.099 (0.082)
2. at income = 200 EUR	0.422*** (0.102)	0.163* (0.075)
3. at income = 300 EUR	0.327** (0.115)	0.226** (0.088)
4. at income = 400 EUR	(0.115)+ (0.134)	0.288** (0.111)
5. at income = 500 EUR	0.132 (0.148)	0.348* (0.137)
$N$	988

Source: GSOEP data 2001–2013.

Notes: AME's from pooled probit. Standard errors in parentheses and significance given by + $p<0.10$,*$p<0.05$, **$p<0.01$,***$p<0.001$.

Figure 3. Predicted probabilities of turning down BAföG depending on student income, information gap and risk aversion. Source: GSOEP data 2001–2013.

Notes: Depicted are the predicted probabilities of students rejecting BAföG depending on their level of income, risk averse behavior and information level of BAföG with 95% confidence intervals (CI's). The dummy variable of students not having any siblings receiving BAföG also contains students who do not have any siblings at all.

Data availability

Socio-Economic Panel. doi:10.5684/soep.v30