Stay in School or Start Working? - The Human Capital Investment Decision under Uncertainty and Irreversibility
46 Pages Posted: 21 Oct 2009
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: Suggested Citation
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