Hartog, Joop van Ophem, Hans Bajdechi, Simona Maria
Year of Publication:
CESifo Working Paper No. 1261
Center for Economic Studies and ifo Institute (CESifo), Munich
The risk of investment in schooling has largely been ignored. We assess the variance in the rate of return by surveying the international empirical literature from this fresh perspective and by simulating risky earnings profiles in alternative options, choosing parameters on basis of the very limited evidence. The distribution of rates of return appears positively skewed. Our best guess of ex ante risk in university education is a coefficient of variation of about 0.3, comparable to that in a randomly selected financial portfolio with some 30 stocks. Allowing for stochastic components in earnings also markedly affects expected returns.