CAFRAL-SRU Brown Bag Seminar - Who Benefits From Access To College And The Stock Market?
Speaker(s) Dr. Urvi Neelakatan, Senior Research Director, CAFRAL Publication CAFRAL Conference room on Mezzanine Floor, Main Building. Reserve Bank of India, Fort, Mumbai 400 001

Returns to college vary across the population, especially ex-ante because non-completion is common. College is heavily subsidized. Returns to the stock market are, by definition, constant across investors and are similar to the ex-post returns to college. Stocks receive no subsidies.  Given (especially) the heterogeneity in ex-ante returns to college, who benefits, and by how much, from college and the stock market?  Using a life-cycle model of human capital and financial asset accumulation, we find that the average willingness-to-pay (WTP) for access to college (14.7%)  is much higher than for stocks (4.4%) in annual consumption terms. However valuations are immensely heterogeneous: nearly 40% of the population assigns no value to college while the top decile of valuations exceeds 40% of consumption. Strikingly, for individuals with the poorest earnings prospects, access to the stock market is substantially more valuable than access to college. We show that college subsidies heavily impact the difference in mean WTP between college and stocks: removing them closes roughly half the gap.