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Schooling choices: Preferences, discount rates, and rates of return

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Author Info

  • Hessel Oosterbeek

    ()
    (University of Amsterdam, Department of Economics, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands)

  • Hans van Ophem

    ()
    (University of Amsterdam, Department of Economics, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands)

Abstract

This paper develops an empirical model to identify the structural parameters of schooling preferences and human capital production. Our model distinguishes between consumption and investment motives with regard to schooling. The results show that both motives matter. Preferences for schooling vary with social background and ability. Children from poorer social backgrounds and of lower ability have a lower preference for schooling. The discount rate that enters the net value of lifetime income varies with social background as well. The marginal rate of return to schooling decreases with ability and schooling. On average the marginal rate of return is 7.3 per cent, which can be contrasted with a `Mincerian' rate of return equal to 4.8 per cent. This indicates that the usual OLS estimate underestimates the true rate of return.

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 25 (2000)
Issue (Month): 1 ()
Pages: 15-34

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Handle: RePEc:spr:empeco:v:25:y:2000:i:1:p:15-34

Note: received: November 1997/Final version received: February 1999
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Related research

Keywords: Human capital; schooling preferences; wages; ability;

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Citations

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Cited by:
  1. Julia Reilich, 2011. "Smoking and Returns to Education: Empirical Evidence for Germany," SOEPpapers on Multidisciplinary Panel Data Research 420, DIW Berlin, The German Socio-Economic Panel (SOEP).
  2. Dur, Robert & Glazer, Amihai, 2008. "Subsidizing Enjoyable Education," Labour Economics, Elsevier, vol. 15(5), pages 1023-1039, October.
  3. Annette Alstadsæter, 2011. "Measuring the Consumption Value of Higher Education," CESifo Economic Studies, CESifo, vol. 57(3), pages 458-479, September.
  4. Brian Jacob & Brian McCall & Kevin M. Stange, 2013. "College as Country Club: Do Colleges Cater to Students’ Preferences for Consumption?," NBER Working Papers 18745, National Bureau of Economic Research, Inc.
  5. Cullinan, John & Flannery, Darragh & Walsh, Sharon & McCoy, Selina, 2012. "Distance Effects, Social Class and the Decision to Participate in Higher Education in Ireland," Papers WP444, Economic and Social Research Institute (ESRI).
  6. Alstadsí¦ter, Annette & Kolm, Ann-Sofie & Larsen, Birthe, 2008. "Money or joy: The choice of educational type," European Journal of Political Economy, Elsevier, vol. 24(1), pages 107-122, March.
  7. Robert Dur & Amihai Glazer, 2005. "Subsidizing Enjoyable Education," Tinbergen Institute Discussion Papers 05-010/1, Tinbergen Institute, revised 29 Aug 2007.
  8. Mª del Salinas-Jiménez & Joaquín Artés & Javier Salinas-Jiménez, 2011. "Education as a Positional Good: A Life Satisfaction Approach," Social Indicators Research, Springer, vol. 103(3), pages 409-426, September.
  9. Fersterer, Josef & Winter-Ebmer, Rudolf, 2000. "Smoking, Discount Rates, and Returns to Education," IZA Discussion Papers 126, Institute for the Study of Labor (IZA).
  10. Flannery, Darragh & O'Donoghue, Cathal, 2009. "The Determinants of Higher Education Participation in Ireland: A Micro Analysis," The Economic and Social Review, Economic and Social Studies, vol. 40(1), pages 73-107.
  11. Wolter, Stefan C. & Zbinden, André, 2001. "Rates of Return to Education: The View of Students in Switzerland," IZA Discussion Papers 371, Institute for the Study of Labor (IZA).
  12. Wambugu, Anthony, 2002. "Family Background, Education and Earnings in Kenya," Working Papers in Economics 76, University of Gothenburg, Department of Economics.
  13. Manuel Salas Velasco, 2004. "Rendimientos privados de las inversiones en educación superior a partir de ecuaciones de ingresos," Hacienda Pública Española, IEF, vol. 169(2), pages 87-117, June.
  14. Anchor, John R. & Fiserová, Jana & Mars[iota]ková, Katerina & Urbánek, Václav, 2011. "Student expectations of the financial returns to higher education in the Czech Republic and England: Evidence from business schools," Economics of Education Review, Elsevier, vol. 30(4), pages 673-681, August.

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