Inference on a Generalized Roy Model, with an Application to Schooling Decisions in France

Abstract

This paper considers the identification and estimation of an extension of Roy's model (1951) of occupational choice, which includes a non-pecuniary component in the decision equation and allows for uncertainty on the potential outcomes. This framework is well suited to various economic contexts, including educational and sectoral choices, or migration decisions. We focus in particular on the identification of the non-pecuniary component under the condition that at least one variable affects the selection probability only through potential earnings, that is under the opposite of the usual exclusion restrictions used to identify switching regressions models and treatment effects. Point identification is achieved if such variables are continuous, while bounds are obtained otherwise. As a result, the distribution of the ex ante treatment effects can be point or set identified without any usual instruments. We propose a three-stages semiparametric estimation procedure for this model, which yields root-n consistent and asymptotically normal estimators. We apply our results to the educational context, by providing new evidence from French data that non-pecuniary factors are a key determinant of higher education attendance decisions.