time workers and those that work in larger firms are more likely to contribute, raising concern for workers employed on a part-time basis and those employed in small firms. There also appear to be barriers preventing women in rural areas and those working in agriculture from formal cover.

> A brief discussion of possible biases due to endogeneity is warranted before proceeding to the last sub-section of results. Several of the variables in the probit could be

> simultaneously determined with contribution to the pension system or endogenous. The possible offending variables include the binary variables for self employment and

> employment without a contract (SELF, and INFW);<sup>5 4</sup> the controls for industry of employment; and the binary variable capturing credit constraint (CREDCON). Although I attempted to control for endogeneity using a two-stage-least-squares procedure, there were an insufficient number of variables in the PRIESO cross-section with the necessary

> explanatory power to act as instruments.

Thus, to control for possible biases from endogeneity, I re-ran the probits without the suspect variables. Removing the possibly endogenous variables did not effect the signs or significance of the main results. The coefficients on some of the variables - notably CONT98, CONDEN, and MPG - became more significant. However, removing the dummies SELF and INFW causes the estimated coefficient on years of education (YEDU) that was positive and significant in the tobit on contribution density, to become significantly (1% level) negative. While this seemingly contradictory result could be explained within the Ehrlich and Becker framework,<sup>55</sup> given the relatively free access to the pension system enjoyed by workers in the informal sector, the result most likely reflects a bias from omitting SELF and INFW. For this reason, I prefer to keep the variables in the model.

# _(vi.c) Examining the Choices of the Self employed_

Evidence from the economic experiments presented in Barr and Packard (2002), indicates that the self employed in Chile are relatively free to reveal their preferences with respect. to the pension system. Further, the results of the experiments suggest that the self employed are not significantly different from wage and salaried employees with respect to- time and risk preferences<sup>56</sup> - both important determinants of savings and insurance decisions. This being the case, the self employed become an agent group of considerable interest, since it is they that are most free to reveal their preferences while representing the preferences of the working population. Barr and Packard (2002) find that the self

> 54 While it is true that a movement into self employment or employment without a contract substantially lowers the likelihood of contribution, self employment and informal employment are not exclusionary

> conditions, per se. As explained in Section 11, entrepreneurs can contribute if they choose to, and workers

> without a contract can choose whether or not to be covered by posing as self employed and contributing on the legal minimum wage. Among self employed men and women in the PRIESO sample, 17.5% were contributing to the pension system, while among employees without a contract 17.7% made contributions.

_55_ An investment in education can postpone the loss of earnings ability, lower the probability of poverty in old age, and thus, lead to a preference for pooling.

> 56 While these findings are robust, they should be taken with caution given the small sample size in the risk

> aversion and time preference measurement follow up to the PRIESO.

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