The Prior Trap

Abstract

Basic economic theory suggests that the decision to go to college should be based only on the expected costs and benefits of college. The income of the family the student comes from should have no effect. Yet, it does. The two common explanations for this discrepancy, inadequate primary school funding and liquidity constraints are at odds with the facts. I offer a third explanation, economically disadvantaged students attend college at lower rates because they have biased information. This analysis connects to the existing literature in at least three ways. It provides a rational basis for the neighborhood effect., extends work on human capital development indicating that educational paths are set at or before age 16 and helps provide an explanation for the both the increase in the return to education and the slowdown in college graduation growth among young men in the United States.