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Risk Premium and Expectations in Higher Education

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  • Gonzalo Castex
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    Abstract

    This paper takes the risk of college participation into context when evaluating the return to college education. College dropout and a higher permanent income shock for those who graduate from college accounts for 51% of the excess return to college education. Using a simple risk premium approach, I reconcile the observed high average returns to schooling with relatively low attendance rates. A high dropout risk has two important effects on the estimated average returns to college education: via selection bias and via risk premium.

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    File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc629.pdf
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    Bibliographic Info

    Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 629.

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    Date of creation: May 2011
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    Handle: RePEc:chb:bcchwp:629

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    1. Diego Restuccia & Carlos Urrutia, 2002. "Intergenerational Persistence of Earnings: The Role of Early and College Education," Working Papers diegor-02-03, University of Toronto, Department of Economics.
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