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Estimating marginal returns to education

Authors: Pedro Carneiro , James Heckman and Edward Vytlacil
Date: 30 October 2011
Type: Journal Article, American Economic Review, Vol. 101, No. 6, pp. 2754--2781
DOI: 10.1257/aer.101.6.2754

Abstract

This paper estimates marginal returns to college for individuals induced to enroll in college by different marginal policy changes. The recent instrumental variables literature seeks to estimate this parameter, but in general it does so only under strong assumptions that are tested and found wanting. We show how to utilize economic theory and local instrumental variables estimators to estimate the effect of marginal policy changes. Our empirical analysis shows that returns are higher for individuals with values of unobservables that make them more likely to attend college. We contrast our estimates with IV estimates of the return to schooling.

Previous version:
Pedro Carneiro, James Heckman and Edward Vytlacil October 2010, Estimating marginal returns to education, cemmap Working Paper, CWP29/10

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