Stay in School or Start Working? - The Human Capital Investment Decision under Uncertainty and Irreversibility

46 Pages Posted: 21 Oct 2009

See all articles by Natasa Bilkic

Natasa Bilkic

University of Paderborn

Thomas Gries

University of Paderborn

Margarethe Pilichowski

affiliation not provided to SSRN

Date Written: October 2009

Abstract

As the time of leaving school determines the level of academic achievement this timing decision is central for the human capital investment decision. Real option theory offers a new perspective of the human capital investment decision under uncertainty and irreversibility. Unlike other approaches we include accumulative schooling costs, and provide a full analytical discussion of all determinants of the decision to terminate education and enter the labor market. Further, as we are able to look at a sequence of formal qualification levels, each characterized by various cost and income profiles we can discuss discontinuities and sheepskin effects within this approach.

Keywords: human capital theory, uncertainty, irreversibility

JEL Classification: J24, D81, I20

Suggested Citation

Bilkic, Natasa and Gries, Thomas and Pilichowski, Margarethe, Stay in School or Start Working? - The Human Capital Investment Decision under Uncertainty and Irreversibility (October 2009). CESifo Working Paper Series No. 2825, Available at SSRN: https://ssrn.com/abstract=1491444

Natasa Bilkic

University of Paderborn ( email )

Thomas Gries (Contact Author)

University of Paderborn ( email )

Warburger St. 100
Paderborn, D-33098
Germany

Margarethe Pilichowski

affiliation not provided to SSRN ( email )

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