Common use of Discussion and Conclusion Clause in Contracts

Discussion and Conclusion. This paper uses administrative and survey data to examine the factors which influence a student’s decision to participate in the Purdue University income share agreement (ISA). The results suggest that there is no adverse selection into the ISA by student ability (GPA, SAT scores) and that selection is driven primarily by parent characteristics. There is also evidence that students are taking advantage of the groups used to set income share percentages; students in higher-paying majors within each group are less likely to participate than those in lower-paying majors. And finally, there is some evidence that students who would like to move to a larger city, where salaries are higher, are less likely to participate in the ISA. My view is that the Purdue income share agreement program has two important char- acteristics that reduce the expected adverse selection. First, eligibility for the program is restricted to sophomores, juniors, and seniors in an environment where it is more difficult to change majors than at most other universities. The second important program charac- teristic is that there are different income share percentage based on the average earnings of graduates from the student’s major and on the student’s year in school. If there were a single income share percentage applied to all students at the university, I believe there would be strong adverse selection by major and year in school. I caution that my conclusion of very little adverse selection into the Purdue ISA may not be (and probably is not) applicable to many other proposed ISA programs. Many proposed ISA programs have an explicit goal of increasing access to college and would allow first- year students to participate. This would increase the adverse selection and would make it very difficult to offer different income share percentages based on expected future earnings when the student has not yet even taken any college courses. The estimated negative effect of the income share percentage on participation suggests that if a single common income share percentage were offered to all ISA applicants, only those planning to graduate in a low-paying major would participate. Allowing differential pricing based on observable student characteristics such as SAT scores, high school GPA, and other factors on the college admission application may help to reduce some of the anticipated adverse selection, though it is simply speculation if this would be successful. Though there is no evidence that students put less effort into their coursework after choosing to participate in the Purdue ISA, there is evidence that ISA participants have lower starting salaries after graduation. Students who participate in an ISA are likely more willing to take a lower paying job, perhaps one that requires fewer hours or is located in a lower cost of living city. It isn’t clear if the ISA participation is causing this differences in preferences (pure moral hazard) or this if is adverse selection on unobservable characteristics. My view is that the evidence points to the moral hazard explanation, though more work is needed. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇., ▇▇▇▇ ▇▇▇▇▇-Ozbay, ▇▇▇▇▇ ▇. ▇▇▇▇▇, and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇. 2018. “Framing Effects, Earnings Expectations, and the Design of Stuent Loan Repayment Schemes.” NBER Working Paper No. 24484.