120_lecture5_fall09 - ECO 120 Lecture 5 Jon Robinson UC Santa Cruz October 8 2009 Jon Robinson(UCSC ECO 120 Lecture 5 October 8 2009 1 35

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ECO 120, Lecture 5 Jon Robinson UC Santa Cruz October 8, 2009 Jon Robinson (UCSC) ECO 120, Lecture 5 October 8, 2009 1 / 35
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Administration problem set 1 due at end of lecture. Solutions will be posted tomorrow. problem set 2 posted today, due 1 week from today midterm 2 weeks from today Consequences of School Construction in Indonesia: Evidence from an Unusual Policy Experiment.² American Economic Review 91 (4): 795-813. Next time: *Miguel, Ted and Michael Kremer (2004), ±Worms: Identifying Impacts on Education and Health in the Presence of Treatment Externalities.² Econometrica 72 (1): 159-217. Jon Robinson (UCSC) ECO 120, Lecture 5 October 8, 2009 2 / 35
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Returns to education Today: returns to education in developing countries To start, there is a VERY big literature on the returns to schooling in developed countries basic regression is ln ( w ) = β 0 + β 1 ( year education ) + ε w - wages what does β 1 represent? what does β 0 represent? do we think that β 1 is likely to be biased? if so, why? What variables are omitted? Which direction is this likely to bias β 1 ? Jon Robinson (UCSC) ECO 120, Lecture 5 October 8, 2009 3 / 35
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Returns to education ll get an estimate of about 8% per year of education concern is that this is biased upwards people have long realized that you have to do fancy things to get a better estimate but randomization not really an option! some examples Jon Robinson (UCSC) ECO 120, Lecture 5 October 8, 2009 4 / 35
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Angrist and Krueger (1991), QJE look at mandatory schooling laws schooling laws require children to stay in school until their 16th or 17th birthday but students start school by some cuto/ point (i.e. say the cuto/ is 10±1) almost 7 say the law says you must stay until you are 16 Jon Robinson (UCSC) ECO 120, Lecture 5 October 8, 2009 5 ± 35
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Angrist and Krueger (1991), QJE then the kid born on 9/30 can drop out just after he starts the 11th grade, whereas the kid born on 10/1 can drop out just after he starts the 10th grade if you think that kids born on 9/30 and 10/1 are otherwise similar, this is like a random increase in education FOR KIDS THAT ARE RIGHT ON THE MARGIN OF DROPPING OUT AT THE MINIMUM AGE Jon Robinson (UCSC) ECO 120, Lecture 5 October 8, 2009 6 / 35
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Angrist and Krueger (1991), QJE why else might outcomes di/er between these sets of kids? older kids may perform better because they are readier±more developed±more mature to start school (burgeoning literature on this) perhaps dropping out in the 10th grade is just "too early" for kids, so the kids that drop out in the 10th grade are not really like the kids that drop out in the 11th grade (i.e. some kids might be willing to drop out at grade 10 and others at 11, but these might not be the same types of kids. In any case, this approach yields a coe¢ cient of approximately 7%
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This note was uploaded on 01/12/2010 for the course ECON 120 taught by Professor Robinson during the Fall '08 term at University of California, Santa Cruz.

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120_lecture5_fall09 - ECO 120 Lecture 5 Jon Robinson UC Santa Cruz October 8 2009 Jon Robinson(UCSC ECO 120 Lecture 5 October 8 2009 1 35

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