Schooling as a Risky Investment: A Survey of Theory and Evidence

The survey primarily seeks to expose the literature, presumably in a well-organized framework. There is no attempt to present any new analyses; only the chapter that lays out the potential scope for the presence of risk in schooling decisions contains some data specifically collected and organized for this survey. In presenting the models, emphasis is on exposing assumptions and results, and leaving intermediate algebraic manipulations mostly to the original sources. The survey will reveal a rather rugged terrain. It is not so difficult to expose ex post variability in outcomes, but much harder to indicate how much of this variability measures ex ante risk. We have theories and models, but not a commonly applied and generally accepted standard model. Empirical evidence is often conflicting, mostly incomplete and in many cases sparse and singular. Only on a few issues can we draw firm conclusions and consider the case closed. On most issues we can only call for more research. It is, indeed, a challenging field worthy of much more attention than so far has been devoted. We need more theoretical effort to develop a work-horse analytical model and more empirical work to measure the risk that is associated with alternative schooling options and to estimate its effect on schooling choices. In particular the many policy choices on design of school systems (such as curriculum design, tracking, financial support for students) should be based on more robust empirical evidence.