On the distribution of college dropouts: household wealth and uninsurable idiosyncratic risk
This paper presents a dynamic model of the decision to pursue a college education in which students face uncertainty about their future income stream after graduation due to unobserved heterogeneity in their innate scholastic ability. After students matriculate and start taking exams, they reevaluate their expectations about succeeding in college and may find it optimal to drop out and join the workforce without completing an undergraduate degree. The model shows that, in accordance with the data, poorer students are less likely to graduate and are more apt to drop out earlier than are wealthier students. Our model generates these results without introducing credit constraints. Conditioning on measures of innate ability, in the data we find that poor students are at least 27 percent more likely to drop out of college and they do so sooner than wealthier students.
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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.
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- 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).
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- S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
- Todd Stinebrickner & Ralph Stinebrickner, 2012. "Learning about Academic Ability and the College Dropout Decision," Journal of Labor Economics, University of Chicago Press, vol. 30(4), pages 707-748.
- Todd Stinebrickner & Ralph Stinebrickner, 2008. "Learning About Academic Ability and the College Drop-Out Decision," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20086, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
- Todd R. Stinebrickner & Ralph Stinebrickner, 2009. "Learning about Academic Ability and the College Drop-out Decision," NBER Working Papers 14810, National Bureau of Economic Research, Inc.
- Nelson, Daniel B & Foster, Dean P, 1994. "Asymptotic Filtering Theory for Univariate ARCH Models," Econometrica, Econometric Society, vol. 62(1), pages 1-41, January.
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