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

33 Pages Posted: 4 Apr 2011 Last revised: 6 Aug 2015

See all articles by Ali K. Ozdagli

Ali K. Ozdagli

Federal Reserve Banks - Federal Reserve Bank of Boston

Nicholas Trachter

Federal Reserve Banks - Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: August 5, 2015

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 reevaluate 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.

Keywords: dropout, wealth effect, idiosyncratic risk

JEL Classification: J24, I21, I22

Suggested Citation

Ozdagli, Ali K. and Trachter, Nicholas, On the Distribution of College Dropouts: Wealth and Uninsurable Idiosyncratic Risk (August 5, 2015). Available at SSRN: https://ssrn.com/abstract=1799734 or http://dx.doi.org/10.2139/ssrn.1799734

Ali K. Ozdagli (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

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Boston, MA 02210
United States

HOME PAGE: http://sites.google.com/site/ozdagli/

Nicholas Trachter

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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