Abstract
The role of ability (a cognitive trait) and patience (a non-cognitive trait) for life outcomes, such as education, is well documented. Similarly, the impact of credit constraints on education decisions is the subject of a vast literature. I take stock of these strands of the literature and ask: how do patience and ability interact with a credit constraint in determining college attainment? I analyze a stylized model of the college decision where individuals are differentiated by their ability and their patience, which is represented by their discount factor. I introduce two different features in the model: either a non-pecuniary cost of college (under the assumption of a perfect credit market) or an exogenous credit constraint (without a non-pecuniary cost). I show that each feature can rationalize, on its own, the observation that the most patient individuals are the most likely to achieve a college education. The exogenous credit constraint, however, has a counterfactual implication. I conclude that the non-pecuniary cost of college is the most likely reason for the role of patience in educational attainment.
Introduction
The literature on the determinants of education (specifically college education) emphasizes the role of cognitive abilities: that is, the characteristics of individuals that affect their acquisition of human capital, whether in college or on the job, and hence their productivity in the workplace. Cawley et al. (2001) established that measured cognitive abilities and schooling are so highly correlated that they are virtually indistinguishable. Cognitive abilities may be innate and/or enhanced by parental investments in a child’s pre-college education. The latter possibility gave rise to investigations into the importance of early investment in children (e.g., Cameron and Heckman, 1998, Keane and Wolpin, 2001).
There is also a literature on the role of non-cognitive traits in determining life outcomes (e.g., Heckman et al., 2006, Almlund et al., 2011). Cawley et al. (2001) document that, after controlling for cognitive ability, non-cognitive personality traits are correlated with earnings via their effects on schooling attainment. A subset of the literature on non-cognitive traits insists on the role of time preferences, i.e., patience, for education. The evidence indicates a positive association: Patient individuals are more likely to achieve higher education than impatient individuals (e.g., Sutter et al., 2013, Golsteyn et al., 2014, Albanese et al., 2016, Falk et al., 2018, Sunde et al., 2022, Hanushek et al., 2022, 2023, Angerer et al., 2023).
Finally, credit constraints are prominent in academic discussions on the determinants of college education (e.g., Lochner and Monge-Naranjo, 2011, 2012, Caucutt and Lochner, 2020). A credit constraint may impede parental investment in their children’s cognitive abilities prior to college enrollment (an “early” constraint). A credit constraint may also directly impede college enrollment (a “late” constraint).
This article is at the intersection of these three strands of the literature. Specifically, I ask how patience and ability interact with a credit constraint in determining college attainment. The reasons for asking this question are as follows: It is not difficult to imagine that, all else equal, the most impatient individuals are the most likely to be constrained out of a college education. Is this the reason why the aforementioned literature reveals a positive association between patience and educational attainment? If not, then what other mechanism could explain that positive association? Furthermore, if impatient individuals are indeed more likely to be constrained than others, then models abstracting from patience heterogeneity would abstract from a channel via which credit constraints operate. This is an argument for building a model with a credit constraint and heterogeneity in both patience and ability.
