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University choice: the role of expected earnings, non-pecuniary outcomes, and financial constraints

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  • Adeline Delavande
  • Basit Zafar

Abstract

We investigate the determinants of students? university choice, with a focus on expected monetary returns, non-pecuniary factors enjoyed at school, and financial constraints, in the Pakistani context. To mitigate the identification problem concerning the separation of preferences, expectations, and markets constraints, we combine rich data on individual-specific subjective expectations about labor market and non-pecuniary outcomes, with direct measures of financial constraints and students? stated school choice both with and without financial constraints. Estimates from a life-cycle model show that future earnings play a small (but statistically significant) role. However, non-pecuniary features, such as a school?s ideology, are major determinants. Data on students? choices without financial constraints allow for the out-of-sample validation of the model, which shows a strikingly good fit. Our results demonstrate that 37 percent of students are financially constrained in their choice of university, and that implementing policies relaxing financial constraints would increase students? average lifetime subjective expected utility by 21 percent. From a methodological standpoint, we find that ignoring non-pecuniary factors, uncertainty related to employment and drop-out, or direct measures of financial constraints yields biased estimates?a result that underscores the importance of having data on these elements for understanding university choice in any context.

Suggested Citation

  • Adeline Delavande & Basit Zafar, 2014. "University choice: the role of expected earnings, non-pecuniary outcomes, and financial constraints," Staff Reports 683, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:683
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    2. Biroli, Pietro & Boneva, Teodora & Raja, Akash & Rauh, Christopher, 2022. "Parental beliefs about returns to child health investments," Journal of Econometrics, Elsevier, vol. 231(1), pages 33-57.
    3. Guy Tchuente, 2016. "High School Human Capital Portfolio and College Outcomes," Journal of Human Capital, University of Chicago Press, vol. 10(3), pages 267-302.
    4. Ana Figueiredo, 2017. "Uncertainty in education: The role of communities and social learning," 2017 Meeting Papers 529, Society for Economic Dynamics.
    5. Teodora Boneva & Christopher Rauh, 2018. "Parental Beliefs about Returns to Educational Investments—The Later the Better?," Journal of the European Economic Association, European Economic Association, vol. 16(6), pages 1669-1711.
    6. Andreas I. Mueller & Johannes Spinnewijn & Giorgio Topa, 2021. "Job Seekers' Perceptions and Employment Prospects: Heterogeneity, Duration Dependence, and Bias," American Economic Review, American Economic Association, vol. 111(1), pages 324-363, January.
    7. Avitabile, Ciro & de Hoyos, Rafael, 2018. "The heterogeneous effect of information on student performance: Evidence from a randomized control trial in Mexico," Journal of Development Economics, Elsevier, vol. 135(C), pages 318-348.
    8. Mi Luo & Simon Mongey, 2019. "Assets and Job Choice: Student Debt, Wages, and Job Satisfaction," 2019 Meeting Papers 1220, Society for Economic Dynamics.
    9. Orazio Attanasio & Teodora Boneva & Christopher Rauh, 2018. "Parental Beliefs about Returns to Different Types of Investments in School Children," Working Papers 2018-032, Human Capital and Economic Opportunity Working Group.
    10. Mi Luo & Simon Mongey, 2019. "Assets and Job Choice: Student Debt, Wages and Amenities," NBER Working Papers 25801, National Bureau of Economic Research, Inc.
    11. Belfield, Chris & Boneva, Teodora & Rauh, Christopher & Shaw, Jonathan, 2016. "Money or Fun? Why Students Want to Pursue Further Education," IZA Discussion Papers 10136, Institute of Labor Economics (IZA).
    12. Francesconi, Marco & Slonimczyk, Fabián & Yurko, Anna, 2019. "Democratizing access to higher education in Russia: The consequences of the unified state exam reform," European Economic Review, Elsevier, vol. 117(C), pages 56-82.
    13. Teodora Boneva & Christopher Rauh, 2017. "Socio-Economic Gaps in University Enrollment: The Role of Perceived Pecuniary and Non-Pecuniary Returns," CESifo Working Paper Series 6756, CESifo.
    14. Elisa M Maffioli & Manoj Mohanan, 2018. "Touching beliefs: Using touchscreen technology to elicit subjective expectations in survey research," PLOS ONE, Public Library of Science, vol. 13(11), pages 1-15, November.
    15. Delavande, Adeline & Zafar, Basit, 2018. "Information and anti-American attitudes," Journal of Economic Behavior & Organization, Elsevier, vol. 149(C), pages 1-31.
    16. Heger, Stephanie A. & Papageorge, Nicholas W., 2018. "We should totally open a restaurant: How optimism and overconfidence affect beliefs," Journal of Economic Psychology, Elsevier, vol. 67(C), pages 177-190.

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    More about this item

    Keywords

    subjective expectations; credit constraints; school choice;
    All these keywords.

    JEL classification:

    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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