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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 the 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 the returns to well-defined marginal policy changes with IV estimates of the return to schooling. Some marginal policy changes inducing students into college produce very low returns.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16474.

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Date of creation: Oct 2010
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Publication status: published as Pedro Carneiro & James J. Heckman & Edward J. Vytlacil, 2011. "Estimating Marginal Returns to Education," American Economic Review, American Economic Association, vol. 101(6), pages 2754-81, October.
Handle: RePEc:nbr:nberwo:16474

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  1. Henry S. Farber & Jeffrey R. Kling & Alan Krueger, 1999. "Interpreting Instrumental Variables Estimates of the Returns to Schooling," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 794, Princeton University, Department of Economics, Industrial Relations Section..
  2. James J. Heckman & Sergio Urzua & Edward J. Vytlacil, 2006. "Understanding Instrumental Variables in Models with Essential Heterogeneity," NBER Working Papers 12574, National Bureau of Economic Research, Inc.
  3. 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.
  4. 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.
  5. 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.
  6. Heckman, James J. & Schmierer, Daniel & Urzua, Sergio, 2010. "Testing the correlated random coefficient model," Journal of Econometrics, Elsevier, Elsevier, vol. 158(2), pages 177-203, October.
  7. Heckman, James J. & Vytlacil, Edward J., 2000. "The relationship between treatment parameters within a latent variable framework," Economics Letters, Elsevier, Elsevier, vol. 66(1), pages 33-39, January.
  8. Hansen, Karsten T & Heckman, James J & Mullen, Kathleen J, 2003. "The effect of schooling and ability on achievement test scores," Working Paper Series, IFAU - Institute for Evaluation of Labour Market and Education Policy 2003:13, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  9. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, Econometric Society, vol. 56(4), pages 931-54, July.
  10. Joseph Romano & Michael Wolf, 2003. "Exact and approximate stepdown methods for multiple hypothesis testing," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 727, Department of Economics and Business, Universitat Pompeu Fabra.
  11. 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.
  12. Edward Vytlacil, 2002. "Independence, Monotonicity, and Latent Index Models: An Equivalence Result," Econometrica, Econometric Society, Econometric Society, vol. 70(1), pages 331-341, January.
  13. James J. Heckman, 2010. "Building Bridges between Structural and Program Evaluation Approaches to Evaluating Policy," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 48(2), pages 356-98, June.
  14. 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.
  15. 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.
  16. 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.
  17. 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.
  18. 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.
  19. 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.
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  1. Marginal returns of education policies
    by Economic Logician in Economic Logic on 2010-11-16 15:03:00
  2. Estimating Marginal Returns to Education
    by maximorossi in NEP-LTV blog on 2010-11-05 11:43:52
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