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Risk Premium and Expectations in Higher Education

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  • Gonzalo Castex

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.

Suggested Citation

  • Gonzalo Castex, 2011. "Risk Premium and Expectations in Higher Education," Working Papers Central Bank of Chile 629, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:629
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    File URL: http://si2.bcentral.cl/public/pdf/documentos-trabajo/pdf/dtbc629.pdf
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    1. Diego Restuccia & Carlos Urrutia, 2004. "Intergenerational Persistence of Earnings: The Role of Early and College Education," American Economic Review, American Economic Association, vol. 94(5), pages 1354-1378, December.
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    Cited by:

    1. Yongseok Shin & Sang Yoon Lee & Donghoon Lee, 2012. "The Option Value of Human Capital," 2012 Meeting Papers 1033, Society for Economic Dynamics.
    2. Alvaro Aguirre, 2017. "Contracting Institutions and Economic Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 192-217, March.

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