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Is Investing College Education Risky?

  • Stacey H. Chen

    (SUNY at Albany)

Attending college seems to be a profitable and affordable investment in the US. Nevertheless, a number of academically talented young people still hesitate to attend college. This puzzle motivates this paper to test for whether college education is a risky investment. To measure the riskiness of college attendance, I estimate the risk differential in earnings between college attendees and high school graduates. This paper copes with selection bias problems and distinguishes permanent earnings risk from transitory earnings risks. Evidence indicates that investing in a four-year college education is indeed risky, suggesting that, under certain circumstances, the riskiness of college attendance is an important factor in the schooling choice.

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File URL: http://econwpa.repec.org/eps/lab/papers/0202/0202001.pdf
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Paper provided by EconWPA in its series Labor and Demography with number 0202001.

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Date of creation: 03 Feb 2002
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Handle: RePEc:wpa:wuwpla:0202001
Note: Type of Document - LaTex; prepared on PC; to print on HP;
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Campbell, John Y, 1996. "Understanding Risk and Return," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 298-345, April.
  2. Costas Meghir & Marten Palme, 2000. "Assessing the Effect of Schooling on Earnings Using a Social Experiment," Econometric Society World Congress 2000 Contributed Papers 0670, Econometric Society.
  3. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, vol. 64(6), pages 950-63, December.
  4. Weiss, Yoram, 1972. "The Risk Element in Occupational and Educational Choices," Journal of Political Economy, University of Chicago Press, vol. 80(6), pages 1203-13, Nov.-Dec..
  5. Altonji, Joseph G, 1993. "The Demand for and Return to Education When Education Outcomes Are Uncertain," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 48-83, January.
  6. Taber, Christopher R., 2000. "Semiparametric identification and heterogeneity in discrete choice dynamic programming models," Journal of Econometrics, Elsevier, vol. 96(2), pages 201-229, June.
  7. Daron Acemoglu & Jorn-Steffen Pischke, 2001. "Changes in the wage structure, family income, and children's education," LSE Research Online Documents on Economics 2471, London School of Economics and Political Science, LSE Library.
  8. Attanasio, Orazio & Davis, Steven J, 1996. "Relative Wage Movements and the Distribution of Consumption," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1227-62, December.
  9. Shea, John, 2000. "Does parents' money matter?," Journal of Public Economics, Elsevier, vol. 77(2), pages 155-184, August.
  10. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  11. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers W97/15, Institute for Fiscal Studies.
  12. Robert J. Willis & Sherwin Rosen, 1978. "Education and Self-Selection," NBER Working Papers 0249, National Bureau of Economic Research, Inc.
  13. Ekaterini Kyriazidou, 1997. "Estimation of a Panel Data Sample Selection Model," Econometrica, Econometric Society, vol. 65(6), pages 1335-1364, November.
  14. David Card, 1994. "Earnings, Schooling, and Ability Revisited," NBER Working Papers 4832, National Bureau of Economic Research, Inc.
  15. Richard Blundell & Thomas M. Stoker, 1994. "Consumption and the timing of income risk," IFS Working Papers W94/09, Institute for Fiscal Studies.
  16. Olson, Lawrence & White, Halbert & Shefrin, H M, 1979. "Optimal Investment in Schooling when Incomes are Risky," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 522-39, June.
  17. Angrist, Joshua D & Newey, Whitney K, 1991. "Over-Identification Tests in Earnings Functions with Fixed Effects," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(3), pages 317-23, July.
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