Friday, September 25, 2009

From the Archive: Estimating the returns to selective colleges

A post from a previous course:

Today, we discussed whether or not attending selective colleges was worth it. We focused primarily on ways in which selective colleges provided different consumption and investment opportunities than non-selective colleges and tried to relate these differences to differences in outcomes that individuals care about (e.g., more income or more happiness). But ultimately, whether or not attending a selective college causally changes individual outcomes is an empirical question.

Caroline Hoxby examined the returns to selective colleges for students entering college in 1960, 1972, and 1982. She finds substantial returns to attending more selective colleges. E.g., moving from a rank 3 to a rank 1 college increases earnings by 129 times the difference in tuition costs (controlling for aptitude). Further, she argues the rate of return has increased over time. A four page summary can be found here.

The Hoxby study, however, includes very few controls for unobserved differences in ability, motivation, etc. which may explain both attendance at selective colleges and higher earnings. Stacy Dale and Alan Krueger attempt to solve at least some of this problem by comparing people were accepted and rejected by similar colleges but chose to attend more or less selective colleges. Using this method, they find that incomes are not increased by attending more selective colleges. However, there are returns to attending more expensive colleges. Finally, regardless of what measure of college quality is used the returns to attending "higher quality" colleges are highest for those from disadvantaged backgrounds. A one page summary of this research can be found here.

Dale and Kreuger say something very interesting. They mention Stephen Spielburg and how he applied to two extremely prestigious schools but was accepted to a less prestigious one. They claim that the schools one applies to but is denied from have more to say about future income than the school actually attended. This is because of 'ambition.' Fascinating. I come from a elitist highschool and personally know friends at Harvard, Yale, etc. Many of these individuals are less making their own choices and following their hearts than going along with what they percieve to be a system. People feel lost without rules. The worst thing is to feel a lack of purpose, so many will fight to remain entrenched in a system. I think that these are the individuals who put more energy into getting into the greatest universities, and have a midlife crisis when they finally have to follow their own intuition. I applied to and was accepted to more 'prestigious' schools than L&C, but came here because I know it fits me and fosters my growth. Essentially, If the study mentioned above contends that it is more one's character and developement of independence than one's ability to fit into a rule-bound system that defines future success, I wholeheartedly agree.
Having read Malcolm Gladwell's "Outliers", I find it contradicting that the study revealed that income gains from attending an elite college are highest for students from a disadvantaged background. Yes, we all know the story of the modern hero born with nothing that then fights his way to the top, however Gladwell's reasoning and studies have me convinced that these explanations of success don't work and that people don't rise from nothing but instead from hidden advantages and opportunities that give them an edge.
It seems logical that those who come from disadvantaged backgrounds have the most to gain and that more 'prestigious' schools provide a payoff in the long-run. What is truly interesting to me, however, is the roles certain schools play in producing different levels of future workers. It seems to me that students from more selective colleges are trained to fill more selective, better paying job positions while students from less selective schools are trained for middle management, for example. I am unaware of any formal studies testing this hypothesis, but I would be curious to see whether or not this is true.
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