Repeated Career Options: A Contingent Claims Approach

Abstract:     
This article studies the behavior of an individual who can repeatedly alternate between two occupations. Such a career option is analogous to an exotic derivative security: an American reset option. Despite infinite opportunities to change occupations, an individual faced with mobility costs is shown to always allow time to go by between occupation changes. In addition, for economically motivated calibrations, the average number of occupation changes declines steadily over time. These results mirror the behavior of real-world individuals, who change occupations more often in the early stages of their professional lives. Finally, it is proved analytically that the individual is unambiguously more reluctant to change occupations when she does not have the assurance that she may return to her initial occupation at a later date. The model demonstrates that the flexibility of repeated career options adds much value over their once-in-a-lifetime counterparts.

Number of Pages in PDF File: 29

Keywords: Career Choice, Occupational Mobility, American Options, Exchange Options, Reset Options, Compound Options

JEL Classification: D81, G12, J24

working papers series