On the Distribution of College Dropouts: Wealth and Uninsurable Idiosyncratic Risk
Abstract: We present a dynamic model of the decision to pursue a college degree in which students face uncertainty about their future income stream after graduation due to unobserved heterogeneity in their innate scholastic ability. After matriculating and taking some exams, students re-evaluate their expectations about succeeding in college and may decide to drop out and start working. The model shows that, in accordance with the data, poorer students are less likely to graduate and are likely to drop out sooner than wealthier students. Our model generates these results without introducing explicit credit constraints.
File format is application/pdf
Description: Full text
Provider: Federal Reserve Bank of Richmond
Part of Series: Working Paper
Publication Date: 2015-11-19
Pages: 32 pages