UiS Business School Seminar: The Macroeconomic Cost of College Dropouts

Wednesday 22 March 2023 12:15-13:15,
Elise Ottesen-Jensens Hus,
EOJ 276/277, Zoom.

Department of Economics and Finance

Published Updated on
Oliko Vardishvili

Name: Oliko Vardishvili

From: University of California, Irvine

Title: The Macroeconomic Cost of College Dropouts

Oliko Vardishvili
Time and place

Date: March 22nd

Time: 1215-1315

Place: Elise Ottesen-Jensens Hus, room 276/277


More than 40% of US college students drop out without gaining a degree. This paper investigates whether dropouts are largely due to academic ability or financial constraints.  I provide empirical evidence that the probability of dropout is strongly associated with both ability and finances--even after controlling for other factors.  I build a quantitative general-equilibrium overlapping generations model, where individuals face incomplete information on their academic ability and uncertainty about the generosity of financial aid.  The model simulations show that uncertainty regarding ability is responsible for 10% of the observed dropout rates, while uncertainty regarding financial aid explains up to 43%. Pursuing a policy that eliminates uncertainty about the college aid would increase social welfare by as much as 1.8%, benefiting both college graduates and non-college graduates. Such a policy is largely self-financing due to endogenous improvements in skill allocation and associated growth in GDP.

Link to paper.

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