Koop, Gary M; Tobias, Justin

Journal of Applied Econometrics Vol. 19 (2004): 827-849.

Using data from the National Longitudinal Survey of
Youth (NLSY) we introduce and estimate various Bayesian hierarchical models
that investigate the nature of unobserved heterogeneity in returns to
schooling. We consider a variety of possible forms for the heterogeneity,
some motivated by previous theoretical and empirical work and some new ones,
and let the data decide among the competing specifications. Empirical
results indicate that heterogeneity is present in returns to education.
Furthermore, we find strong evidence that the heterogeneity follows a
continuous rather than discrete distribution, and that bivariate Normality
provides a very reasonable description of individual-level heterogeneity in
intercepts and returns to schooling.