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

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  • Delavande, Adeline
  • Zafar, Basit

    () (Federal Reserve Bank of New York)

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

  • Delavande, Adeline & Zafar, Basit, 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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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.
    3. Ana Figueiredo, 2017. "Uncertainty in education: The role of communities and social learning," 2017 Meeting Papers 529, Society for Economic Dynamics.
    4. Christian Belzil & Arnaud Maurel & Modibo Sidibé, 2017. "Estimating the Value of Higher Education Financial Aid: Evidence from a Field Experiment," NBER Working Papers 23641, National Bureau of Economic Research, Inc.
    5. 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.
    6. Chris Belfield & Teodora Boneva & Christopher Rauh & Jonathan Shaw, 2016. "Money or fun? Why students want to pursue further education," IFS Working Papers W16/13, Institute for Fiscal Studies.
    7. repec:eee:jeborg:v:149:y:2018:i:c:p:1-31 is not listed on IDEAS
    8. Pietro Biroli & Teodora Boneva & Akash Raja & Christopher Rauh, 2018. "Parental Beliefs about Returns to Child Health Investments," Working Papers 2018-008, Human Capital and Economic Opportunity Working Group.

    More about this item

    Keywords

    school choice; credit constraints; subjective expectations;

    JEL classification:

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

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