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Estimating the Ex Ante Expected Returns to College

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  • Andrew J. Hussey
  • Omari H. Swinton

Abstract

Rather than estimating the returns to obtaining a college degree, this paper treats the college education decision as an uncertain investment involving varying likelihoods of successful graduation. We predict earnings conditional on both graduating and not graduating from both selective and non-selective institutions, and incorporate estimated individual-specific graduation rates in calculating the ex ante expected returns from college attendance for individuals across the ability distribution. Our results suggest that, especially for lower ability students, ex ante returns may differ substantially from typical estimates of the returns to a college degree, and typical estimates of the selectivity premium may be underestimated.

Suggested Citation

  • Andrew J. Hussey & Omari H. Swinton, 2011. "Estimating the Ex Ante Expected Returns to College," American Economic Review, American Economic Association, vol. 101(3), pages 598-602, May.
    • Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:598-602
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.598
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    References listed on IDEAS

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    1. Terry Long, B.Bridget, 2004. "How have college decisions changed over time? An application of the conditional logistic choice model," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 271-296.
    2. Arcidiacono, Peter, 2004. "Ability sorting and the returns to college major," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 343-375.
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    Cited by:

    1. Johannes S. Kunz & Kevin E. Staub, 2016. "Subjective Completion Beliefs and the Demand for Post-Secondary Education," SOEPpapers on Multidisciplinary Panel Data Research 878, DIW Berlin, The German Socio-Economic Panel (SOEP).
    2. Kunz, Johannes S. & Staub, Kevin E., 2020. "Early subjective completion beliefs and the demand for post-secondary education," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 34-55.

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