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

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  • Natasa Bilkic
  • Thomas Gries
  • Margarethe Pilichowski

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.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-10/cesifo1_wp2825.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2825.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2825

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Keywords: human capital theory; uncertainty; irreversibility;

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References

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  8. Vincent Hogan & Ian Walker, 2006. "Education Choice under Uncertainty - Implications for Public Policy," Working Papers 200615, School Of Economics, University College Dublin.
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Cited by:
  1. Thomas Gries & Natasa Bilkic, 2014. "Investment under Threat of Disaster," Working Papers 77, University of Paderborn, CIE Center for International Economics.
  2. Anna Zaharieva, 2013. "On-the-job search and optimal schooling under uncertainty and irreversibility," Working Papers 492, Bielefeld University, Center for Mathematical Economics.

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