Risk Premiums and Schooling Choice.

L. S. Olson

Expert InsightsPublished 1973

A human capital risk analysis that attempts to estimate the effect of increased length of schooling on the amount of risk that impinges on the student in the future, considering earnings in conjunction with investment income. Nonpecuniary returns are ignored. Individuals' actual anticipations of future earnings, needed to compare with actual earnings to determine involuntary variance, were found in the Consumer Anticipation Survey of 3,535 families of above-average income in Boston, Minneapolis, and the San Francisco Bay Area. Each family was visited five times from mid-1968 to the end of 1970. Data calculated from survey results are presented before and after removing extreme outliers from the sample. Under certain assumptions, risk premiums fall with increased schooling length, although part of the fall comes from interaction of education with nonwage income. However, earning variation increases at higher schooling levels, suggesting that advanced education is more "specific" and that the more educated choose riskier investment portfolios. (Preliminary work toward a doctoral thesis.) 53 pp. Bibliog.

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Olson, L. S., Risk Premiums and Schooling Choice. Santa Monica, CA: RAND Corporation, 1973. https://www.rand.org/pubs/papers/P5059.html.
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