Present Bias and Underinvestment in Education? Long-run Effects of Childhood Exposure to Booms in Colombia

This paper examines the long-run impacts of income shocks by exploiting variation
in coffee cultivation patterns within Colombia and world coffee prices during cohorts’
school-going years in a differences-in-differences framework. The results indicate that
cohorts who faced higher returns to coffee-related work during school-going years
completed fewer years of schooling and have lower income in adulthood. These ndings
suggest that leaving school during temporary booms results in a signi cant loss of
long-term income. This is consistent with the possibility that students may ignore
or heavily discount the future consequences of dropout decisions when faced with
immediate income gains.

JEL codes: J24; O12; O13.

Keywords: coffee price shocks; transitory income shocks; human capital accumulation;
opportunity cost of schooling; long-run impacts; schooling