  Evidence on educational returns and the factors that determine the demand for
schooling in developing countries is extremely scarce. Building on previous
studies that show individuals underestimating the returns to schooling, we use
two surveys from Tanzania to estimate both the actual and perceived schooling
returns and subsequently examine what factors drive individual misperceptions
regarding actual returns. Using ordinary least squares and instrumental
variable methods, we find that each additional year of schooling in Tanzania
increases earnings, on average, by 9 to 11 percent. We find that on average
individuals underestimate returns to schooling by 74 to 79 percent and three
factors are associated with these misperceptions: income, asset poverty and
educational attainment. Shedding light on what factors relate to individual
beliefs about educational returns can inform policy on how to structure
effective interventions in order to correct individual misperceptions.
