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Using Observed Choices to Infer Agent's Information: Reconsidering the Importance of Borrowing Constraints, Uncertainty and Preferences in College Attendance

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Abstract

I use economic theory and estimates of a semiparametrically identified structural model to analyze the role played by credit constraints, uncertainty and preferences in explaining college attendance. A methodology for inferring information available to the agent from individual choices is proposed and implemented. The test distinguishes which of the unobserved (to the analyst) components of future outcomes are known to the agent and which are unknown to both at a given stage of the life cycle. I use microdata on earnings, schooling and consumption to infer the agent's information set and estimate a model of college choice and consumption under uncertainty with equilibrium borrowing constraints. I estimate that 80% and 44% of the variances of college and high school earnings respectively are predictable by the agent. Moving to a no tuition economy increases college attendance from 48% to 50%. When people are allowed to smooth consumption, college increases to nearly 58%. General equilibrium effects not withstanding, credit constraints have a larger effect than previously suggested.

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  • Salvador Navarro, 2011. "Using Observed Choices to Infer Agent's Information: Reconsidering the Importance of Borrowing Constraints, Uncertainty and Preferences in College Attendance," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20118, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
  • Handle: RePEc:uwo:hcuwoc:20118
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    Cited by:

    1. Dominik Sachs & Sebastian Findeisen, 2016. "Optimal Financial Aid Policies for Students," 2016 Meeting Papers 1421, Society for Economic Dynamics.
    2. Diego Restuccia & Guillaume Vandenbroucke, 2013. "The Evolution Of Education: A Macroeconomic Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(3), pages 915-936, August.
    3. Todd Schoellman & Lutz Hendricks, 2009. "Student Abilities During the Expansion of U.S. Education, 1950-2000," 2009 Meeting Papers 162, Society for Economic Dynamics.
    4. Hui He, 2011. "Why Have Girls Gone to College? A Quantitative Examination of the Female College Enrollment Rate in the United States: 1955-1980," Annals of Economics and Finance, Society for AEF, vol. 12(1), pages 41-64, May.
    5. Lance Lochner & Alexander Monge-Naranjo, 2012. "Credit Constraints in Education," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 225-256, July.
    6. Marco Francesconi & James J. Heckman, 2016. "Child Development and Parental Investment: Introduction," Economic Journal, Royal Economic Society, vol. 126(596), pages 1-27, October.
    7. Francesconi, Marco & Heckman, James J., 2016. "Symposium on Child Development and Parental Investment: Introduction," IZA Discussion Papers 9977, Institute of Labor Economics (IZA).
    8. Francesconi, Marco & Heckman, James J, 2015. "Symposium on Child Development and Parental Investment: Introduction," Economics Discussion Papers 16868, University of Essex, Department of Economics.
    9. Matthew T. Johnson, 2013. "Borrowing Constraints, College Enrollment, and Delayed Entry," Journal of Labor Economics, University of Chicago Press, vol. 31(4), pages 669-725.
    10. Findeisen, Sebastian & Sachs, Dominik, 2015. "Designing efficient college and tax policies," Working Papers 15-09, University of Mannheim, Department of Economics.
    11. Flávio Cunha & James Heckman, 2016. "Decomposing Trends in Inequality in Earnings into Forecastable and Uncertain Components," Journal of Labor Economics, University of Chicago Press, vol. 34(S2), pages 31-65.
    12. Josh Kinsler & Ronni Pavan, 2015. "The Specificity of General Human Capital: Evidence from College Major Choice," Journal of Labor Economics, University of Chicago Press, vol. 33(4), pages 933-972.
    13. Sachs, Dominik & Findeisen, Sebastian, 2014. "Designing Efficient Education and Tax Policies," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100504, Verein für Socialpolitik / German Economic Association.
    14. Nicolás Grau, 2016. "A Dynamic Model of Elementary School Choice," Working Papers wp417, University of Chile, Department of Economics.

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