Uncertainty in education: The role of communities and social learning

Ana Figueiredo
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Ana Figueiredo: Universitat Pompeu Fabra

No 529, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies the role of information frictions and social learning as a novel channel through which neighbourhoods affect children educational outcomes. I write a model of educational choice with two novel features: (i) individuals are uncertain about the returns to education, and (ii) they learn about the them by observing nearby skilled neighbours. In contrast to prior models of human capital formation with local interactions, in a model with information frictions and social learning, it is not only about being exposed skilled neighbours, but also about their wage distribution: skilled neighbours only increase schooling investment if the labor market information they disclose leads to an increase in the perceived education premium. Using school-district data from Michigan over the period 2008-2014, I find evidence supporting the model’s pre- diction. I also calibrate the model to Detroit data in 2013 and through counterfactual experiments show that social learning plays an important role in reducing the underlying uncertainty about college returns, however it also increases inequalities across neighbourhoods.

Date: 2017
New Economics Papers: this item is included in nep-edu and nep-ure
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