2school_and_RCT

# 2school_and_RCT - 1 Ed Notes What aects demand for...

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1 Ed Notes What a/ects demand for education? How to model this? Ignore, for now, preferences. Demand for Schooling A simple model: Individuals live 2 years. In year 1, they decide whether they will go to school or work. In year 2, everyone works People with school earn w 1 when they work. People without school earn w 0 in each period, w 1 > w 0 Schooling costs c May value next year less than today, so earning w in year 2 is worth to you today, where ± 1 : Then, will choose school if 1 ² c > &w 0 + w 0 ( w 1 ² w 0 ) > c + w 0 What about utility±disutility of schooling? c . w 1 ² w 0 ) 2 How much can we learn from theory here? Much of what is above *sounds* reasonable. It seems likely that people consider the gains to schooling when they decide to go to school; it seems likely that people value consumption in the future somewhat less than they value consumption today (because otherwise it²s hard to justify high interest rates); it seems likely that people who face higher costs of attending school are less likely to do so. 1

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to make sure people are aware of the gains from schooling? Or is it more valuable to reduce costs? Which things will have the biggest e/ects or be the most cost e/ective way to bring people into schools. So, suppose we want to learn what leads to individuals going to school or not. It would be nice to understand lots of things: the return to schooling, the costs in terms of time and money of attending school, the rate of time preference, etc. w i ; we could estimate ^ w 1 = P w i s N 1 and ^ w 0 = P w i (1 s ) N 0 where N 1 represents the number of people for whom s = 1 and N 0 represents the number of people for whom s = 0 : However, there might be a problem here. What if more "able" people receive higher wages? Suppose a = 1 and b = 2 . Further suppose w = for w = w 1 ;w 2 : Then the choice for type a people is ± ( w 1 ± w 0 ) > c + w 0 as before. for type b 0 s , it is 2 ± ( w 1 ± w 0 ) > c + 2 w 0 ± ( w 1 ± w 0 ) > c 2 + w 0 so, type b 0 s more likely to go to school than type a 0 s: type b 0 s go to school, and no type a 0 s do. Suppose we wondered why few people go to school, and we wanted to look at the return to schooling. If we just looked at mean wages for people with and without schooling, we would see ^ w 1 = 2 w 1 2
and ^ w 0 = w 0 we might further wonder why so few people go to school, as (2 w 1 ± w 0 ) could be quite large. This could lead to a variety of false conclusions (overestimating costs, inferring that there is a shortage of schools, etc.) The problem, here, is that schooling is not randomly assigned. So if we compare people who receive

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## This note was uploaded on 02/09/2011 for the course EEP 115 taught by Professor Waynem.getz during the Fall '10 term at University of California, Berkeley.

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2school_and_RCT - 1 Ed Notes What aects demand for...

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