Biases in twin estimates of the return to schooling

Recent within-twin estimates of the return to schooling that use instrument al variables to correct for measurement error are considerably higher than existing estimates. This paper extends Griliches' [Griliches (1979) Sibling models and data in economics: beginnings of a survey, Journal of Political Economy 87, S37-S64]. analysis of sibling or twin estimates of the return to schooling to show that small ability differences among twins can lead to more upward omitted ability bias-and more upward bias overall-in the instr umental variables estimate that corrects for measurement error than in the standard within-twin estimate. This point is relevant for any application i n which differencing may not fully remove the omitted variable, and may exp lain high within-twin instrumental variable estimates of the return to scho oling. [JELI21] (C) 1999 Elsevier Science Ltd. All rights reserved.