University choice: the role of expected earnings, non-pecuniary outcomes and financial constraints
Adeline Delavande () and
No 2014-38, ISER Working Paper Series from Institute for Social and Economic Research
We investigate the determinants of studentsâ€™ university choice, with a focus on expected monetary returns, non-pecuniary factors enjoyed at school, and financial constraints, in the Pakistani context. To mitigate the identification problem concerning the separation of preferences, expectations and markets constraints, we combine rich data on individual-specific subjective expectations about labor market and non-pecuniary outcomes, with direct measures of financial constraints and studentsâ€™ stated school choice both with and without financial constraints. Estimates from a life-cycle model show that future earnings play a small (but statistically significant) role. However, non-pecuniary outcomes, such as schoolâ€™s ideology, are major determinants. Data on studentsâ€™ choices without financial constraints allow for the outof- sample validation of the model, which shows a strikingly good fit. Our results show that 37% of students are financially constrained in the university choice, and that implementing policies relaxing financial constraints would increase studentsâ€™ average lifetime subjective expected utility by 21%. From a methodological point, we find that ignoring non-pecuniary factors, uncertainty related to employment and drop-out, or direct measures of financial constraints, yields biased estimates â€“ thereby underscoring the importance of having data on these aspects for understanding university choice in any context.
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Working Paper: University choice: the role of expected earnings, non-pecuniary outcomes, and financial constraints (2014)
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