Schooling choices: Preferences, discount rates, and rates of return

Hessel Oosterbeek and Hans van Ophem ()
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Hans van Ophem: University of Amsterdam, Department of Economics, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands

Empirical Economics, 2000, vol. 25, issue 1, 15-34

Abstract: This paper develops an empirical model to identify the structural parameters of schooling preferences and human capital production. Our model distinguishes between consumption and investment motives with regard to schooling. The results show that both motives matter. Preferences for schooling vary with social background and ability. Children from poorer social backgrounds and of lower ability have a lower preference for schooling. The discount rate that enters the net value of lifetime income varies with social background as well. The marginal rate of return to schooling decreases with ability and schooling. On average the marginal rate of return is 7.3 per cent, which can be contrasted with a `Mincerian' rate of return equal to 4.8 per cent. This indicates that the usual OLS estimate underestimates the true rate of return.

Keywords: Human capital; schooling preferences; wages; ability (search for similar items in EconPapers)
JEL-codes: I20 J24 (search for similar items in EconPapers)
Date: 2000-02-14
Note: received: November 1997/Final version received: February 1999
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Citations: View citations in EconPapers (30)

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