College Attrition and the Dynamics of Information Revelation
This paper investigates the role played by informational frictions in college and the workplace. We estimate a dynamic structural model of schooling and work decisions, where individuals have imperfect information about their schooling ability and labor market productivity. We take into account the heterogeneity in schooling investments by distinguishing between two- and four-year colleges, graduate school, as well as science and non-science majors for four-year colleges. Individuals may also choose whether to work full-time, part-time, or not at all. A key feature of our approach is to account for correlated learning through college grades and wages, whereby individuals may leave or re-enter college as a result of the arrival of new information on their ability and productivity. Our findings indicate that the elimination of informational frictions would increase the college graduation rate by 9 percentage points, and would increase the college wage premium by 32.7 percentage points through increased sorting on ability.
We thank the attendees of the 2012 Conference in Honor of John Kennan, the 2012 Cowles Foundation Conference on Structural Microeconomics, the 2012 North American Summer Meeting of the Econometric Society (Northwestern), the 2014 SED conference (Toronto), the 2014 SITE Workshop on Empirical Implementation of Theoretical Models of Strategic Interaction and Dynamic Behavior (Stanford), the 2014 WEA Annual Meetings (Denver), the 2014 Swiss Leading House conference on the Economics of Study Choices, the 2015 Barcelona GSE Structural Microeconometrics Workshop, the 2015 Labour Workshop (Warwick), the 11th World Congress of the Econometric Society (Montreal), the 2015 SEA Meetings (New Orleans), the 2016 AEA Meetings (San Francisco), as well as seminar participants at Arizona State, Carnegie Mellon, CREST, IDB, Toulouse School of Economics, University of Chicago, University of Colorado-Boulder, University of North Carolina at Chapel Hill, University of Pennsylvania, and Yale University for helpful comments and suggestions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.