On the Distribution of College Dropouts: Wealth and Uninsurable Idiosyncratic Risk

Ali Ozdagli and Nicholas Trachter

No 1105, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: We present a dynamic model of college education where the students face uncertainty about their income stream after graduation due to unobserved heterogeneity in their innate scholastic ability. As students write exams, they reevaluate their expectations and may find it optimal to drop out and join the workforce without reaping the whole benefit of college education. The model shows that, in accordance with the data, poorer students are less likely to graduate and are more likely to drop out earlier than wealthier students. Our model generates these results without introducing credit constraints. Conditioning on measures of innate ability, we find in the data that poor students are at least 31% more likely to drop and they do so around a year before rich students.

Pages: 29 pages
Date: 2011, Revised 2011-03
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: On the Distribution of College Dropouts: Wealth and Uninsurable Idiosyncratic Risk (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:1105

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