The long run economic consequences of high-stakes examinations: evidence from transitory variation in pollution

Cognitive performance during high-stakes exams can be affected by random disturbances that, even if transitory, may have permanent consequences. We evaluate this hypothesis among Israeli students who took a series of matriculation exams between 2000 and 2002. Exploiting variation across the same student taking multiple exams, we find that transitory PM2.5 exposure is associated with a significant decline in student performance. We then examine these students in 2010 and find that PM2.5 exposure during exams is negatively associated with post-secondary educational attainment and earnings. The results highlight how reliance on noisy signals of student quality can lead to allocative inefficiency.