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Estimating Marginal Returns to Education

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  • Pedro Carneiro
  • James J. Heckman
  • Edward J. Vytlacil

Abstract

This paper estimates marginal returns to college for individuals induced to enroll in college by different marginal policy changes. The recent instrumental variables literature seeks to estimate this parameter, but in general it does so only under strong assumptions that are tested and found wanting. We show how to utilize economic theory and local instrumental variables estimators to estimate the effect of marginal policy changes. Our empirical analysis shows that returns are higher for individuals with values of unobservables that make them more likely to attend college. We contrast our estimates with IV estimates of the return to schooling. (JEL I23, J24, J31)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 6 (October)
Pages: 2754-81

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:6:p:2754-81

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References

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  1. Joseph P. Romano & Michael Wolf, 2005. "Exact and Approximate Stepdown Methods for Multiple Hypothesis Testing," Journal of the American Statistical Association, American Statistical Association, American Statistical Association, vol. 100, pages 94-108, March.
  2. Pedro Carneiro & James Heckman & Edward Vytlacil, 2009. "Evaluating marginal policy changes and the average effect of treatment for individuals at the margin," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP21/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  3. Hansen, Karsten T. & Heckman, James J. & Mullen, Kathleen, 2003. "The Effect of Schooling and Ability on Achievement Test Scores," IZA Discussion Papers 826, Institute for the Study of Labor (IZA).
  4. Bjorklund, Anders & Moffitt, Robert, 1987. "The Estimation of Wage Gains and Welfare Gains in Self-selection," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 42-49, February.
  5. James J. Heckman & Sergio Urzua & Edward Vytlacil, 2009. "Understanding Instrumental Variables in Models with Essential Heterogeneity," Working Papers, Geary Institute, University College Dublin 200941, Geary Institute, University College Dublin.
  6. Jeffrey R. Kling, 2000. "Interpreting Instrumental Variables Estimates of the Returns to Schooling," NBER Working Papers 7989, National Bureau of Economic Research, Inc.
  7. Kane, Thomas J & Rouse, Cecilia Elena, 1995. "Labor-Market Returns to Two- and Four-Year College," American Economic Review, American Economic Association, American Economic Association, vol. 85(3), pages 600-614, June.
  8. James J. Heckman & Daniel Schmierer, 2009. "Testing the Correlated Random Coefficient Model," Working Papers, Geary Institute, University College Dublin 200937, Geary Institute, University College Dublin.
  9. Taber, Christopher R, 2001. "The Rising College Premium in the Eighties: Return to College or Return to Unobserved Ability?," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 68(3), pages 665-91, July.
  10. James J. HECKMAN & Sergio URZUA & Edward VYTLACIL, 2008. "Instrumental Variables in Models with Multiple Outcomes: The General Unordered Case," Annales d'Economie et de Statistique, ENSAE, issue 91-92, pages 151-174.
  11. Edward Vytlacil, 2002. "Independence, Monotonicity, and Latent Index Models: An Equivalence Result," Econometrica, Econometric Society, Econometric Society, vol. 70(1), pages 331-341, January.
  12. Janet Currie & Enrico Moretti, 2003. "Mother'S Education And The Intergenerational Transmission Of Human Capital: Evidence From College Openings," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(4), pages 1495-1532, November.
  13. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, Econometric Society, vol. 62(2), pages 467-75, March.
  14. James J. Heckman, 2010. "Building Bridges between Structural and Program Evaluation Approaches to Evaluating Policy," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 356-98, June.
  15. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post--secondary Schooling," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(482), pages 705-734, October.
  16. Aakvik, Arild & Heckman, James J. & Vytlacil, Edward J., 2005. "Estimating treatment effects for discrete outcomes when responses to treatment vary: an application to Norwegian vocational rehabilitation programs," Journal of Econometrics, Elsevier, Elsevier, vol. 125(1-2), pages 15-51.
  17. Heckman, James J. & Vytlacil, Edward J., 2000. "The relationship between treatment parameters within a latent variable framework," Economics Letters, Elsevier, vol. 66(1), pages 33-39, January.
  18. Stephen V. Cameron & Christopher Taber, 2004. "Estimation of Educational Borrowing Constraints Using Returns to Schooling," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(1), pages 132-182, February.
  19. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, Econometric Society, vol. 56(4), pages 931-54, July.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Estimating Marginal Returns to Education
    by maximorossi in NEP-LTV blog on 2010-11-05 11:43:52
  2. Marginal returns of education policies
    by Economic Logician in Economic Logic on 2010-11-16 15:03:00
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