On the Distribution of College Dropouts: Wealth and Uninsurable Idiosyncratic Risk
We present a dynamic model of college education where the students face uncertainty about their income stream after graduation due to unobserved heterogeneity in their innate scholastic ability. As students write exams, they reevaluate their expectations and may find it optimal to drop out and join the workforce without reaping the whole benefit of college education. The model shows that, in accordance with the data, poorer students are less likely to graduate and are more likely to drop out earlier than wealthier students. Our model generates these results without introducing credit constraints. Conditioning on measures of innate ability, we find in the data that poor students are at least 31% more likely to drop and they do so around a year before rich students.
|Date of creation:||2011|
|Date of revision:||Mar 2011|
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- Ralph Stinebrickner & Todd Stinebrickner, 2008.
"The Effect of Credit Constraints on the College Drop-Out Decision: A Direct Approach Using a New Panel Study,"
American Economic Review,
American Economic Association, vol. 98(5), pages 2163-2184, December.
- Todd R. Stinebrickner & Ralph Stinebrickner, 2007. "The Effect of Credit Constraints on the College Drop-Out Decision A Direct Approach Using a New Panel Study," NBER Working Papers 13340, National Bureau of Economic Research, Inc.
- Todd R. Stinebrickner & Ralph Stinebrickner, 2007. "The Effect of Credit Constraints on the College Drop-Out Decision: A Direct Approach Using a New Panel Study," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20071, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
- Nicholas Trachter, 2011. "Option Value and Transitions in a Model of Postsecondary Education," EIEF Working Papers Series 1103, Einaudi Institute for Economics and Finance (EIEF), revised Jan 2011. Full references (including those not matched with items on IDEAS)
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