University Choice: The Role of Expected Earnings, Non-pecuniary Outcomes, and Financial Constraints

65 Pages Posted: 9 Aug 2014

See all articles by Adeline Delavande

Adeline Delavande

New University of Lisbon - Faculdade de Economia

Basit Zafar

Arizona State University

Date Written: August 1, 2014

Abstract

We investigate the determinants of students’ 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 students’ 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 features, such as a school’s ideology, are major determinants. Data on students’ choices without financial constraints allow for the out-of-sample validation of the model, which shows a strikingly good fit. Our results demonstrate that 37 percent of students are financially constrained in their choice of university, and that implementing policies relaxing financial constraints would increase students’ average lifetime subjective expected utility by 21 percent. From a methodological standpoint, we find that ignoring non-pecuniary factors, uncertainty related to employment and drop-out, or direct measures of financial constraints yields biased estimates — a result that underscores the importance of having data on these elements for understanding university choice in any context.

Keywords: school choice, credit constraints, subjective expectations

JEL Classification: D81, D84, I21, I23

Suggested Citation

Delavande, Adeline and Zafar, Basit, University Choice: The Role of Expected Earnings, Non-pecuniary Outcomes, and Financial Constraints (August 1, 2014). FRB of New York Staff Report No. 683. Available at SSRN: https://ssrn.com/abstract=2477854 or http://dx.doi.org/10.2139/ssrn.2477854

Adeline Delavande

New University of Lisbon - Faculdade de Economia ( email )

Campus de Campolide
Lisboa, 1099-032
Portugal
+35 1 21 380 16 00 (Phone)
+35 1 21 387 09 33 (Fax)

HOME PAGE: http://docentes.fe.unl.pt/~adeline/page2.html

Basit Zafar (Contact Author)

Arizona State University ( email )

WP Carey School of Business, ASU
Tempe, AZ 85287
United States
9179326564 (Phone)

HOME PAGE: http://https://sites.google.com/site/basitakzafar/

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
100
Abstract Views
770
rank
283,668
PlumX Metrics