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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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Paper provided by EconWPA in its series Labor and Demography with number 0202001.

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Date of creation: 03 Feb 2002
Date of revision:
Handle: RePEc:wpa:wuwpla:0202001
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  1. 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.
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  8. Costas Meghir & MÃ¥rten Palme, 1999. "Assessing the effect of schooling on earnings using a social experiment," IFS Working Papers W99/10, Institute for Fiscal Studies.
  9. 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.
  10. David Card, 1994. "Earnings, Schooling, and Ability Revisited," Working Papers 710, Princeton University, Department of Economics, Industrial Relations Section..
  11. Willis, Robert J & Rosen, Sherwin, 1979. "Education and Self-Selection," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S7-36, October.
  12. 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.
  13. John Shea, 1997. "Does Parents' Money Matter?," NBER Working Papers 6026, National Bureau of Economic Research, Inc.
  14. Joseph G. Altonji, 1991. "The Demand for and Return to Education When Education Outcomes are Uncertain," NBER Working Papers 3714, National Bureau of Economic Research, Inc.
  15. Blundell, Richard & M. Stoker, Thomas, 1999. "Consumption and the timing of income risk," European Economic Review, Elsevier, vol. 43(3), pages 475-507, March.
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