THE TEACHING ECONOMIST - William A. McEachern                 

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Issue 18, Spring 2000

William A. McEachern, Editor

Are Elite Colleges Worth it?

I recently heard Warren Buffet on C-SPAN talking about higher education to a group of high-school students. He said that he believed the extra value of an education at elite institutions was not worth the extra cost. Because he spent his first two college years at the University of Pennsylvania and his second two at the University of Nebraska, he may be in a position to make such a comparison.

Many studies have found a positive link between college quality and a student's subsequent earnings. One big problem with such studies is that more selective colleges admit students based on qualities that also relate to their subsequent earnings capacity. Researchers may filter out some of this with control variables such as SAT scores, but many characteristics used by the admissions committee are simply not available to subsequent researchers.

To control for the selection bias that confound such studies, Stacy Berg Dale of the Mellon Foundation and Alan Krueger of Princeton matched students who were admitted to the same set of institutions then focused on the earnings impact of the college the student chose to attend. They find that, ceteris paribus, students who attend a more selective college earn no more than students who were accepted by that college but instead attended a less selective institution. They conclude that their "findings cast doubt on the view that school selectivity, as measured by the average SAT score of freshman who attend a college, is an important determinant of students' subsequent earnings" (p. 30).

Dale and Krueger find that students who choose to attend the less elite institutions end up ranking higher in their class, and this signal to employers and graduate schools may offset the reputation effect lost by not going to the more selective institutions. Their paper, entitled "Estimating the Payoff to Attending a More Selective College: An Application of Selection on Observables and Unobservables" (NBER Working Paper No. W7322, August 1999) can be downloaded at http://www.nber.org/papers/w7322 if your school subscribes to the NBER publications.

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