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Human capital as a risky asset and the effect of uncertainty on the decision to invest

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Author Info
Saïd Hanchane () (LEST - Laboratoire d'économie et de sociologie du travail - CNRS : UMR6123 - Université de Provence - Aix-Marseille I - Université de la Méditerranée - Aix-Marseille II)
A. Lioui () (Department of Economics - Bar Llan University)
David Touahri () (LEST - Laboratoire d'économie et de sociologie du travail - CNRS : UMR6123 - Université de Provence - Aix-Marseille I - Université de la Méditerranée - Aix-Marseille II)

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Abstract

In this paper, we analyse the human capital accumulation process over the life cycle of individuals under uncertainty. To do so, we develop a continuous time dynamic programming model which takes into account several sources of uncertainty, concerning the human capital accumulation process and the labour market. We also introduce some macro exogenous variables to take into account intertemporality of decisions. We first determine the structure of human capital investment in a general setting. Then, we specify individual preferences to obtain explicit solutions, and we produce an in-depth study of each source's effect of uncertainty on human capital investment. As a special case of state variable, we explicitely take into account unemployment risk. We show that the global effect of uncertainty is negative, except if a sufficiently high risk premium exists.

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Paper provided by HAL in its series Post-Print with number halshs-00010139_v1.

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Date of creation: Apr 2006
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Handle: RePEc:hal:journl:halshs-00010139_v1

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Related research
Keywords: Human capital; Life cycle; Risk; Stochastic optimal control;

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  1. Natasa Bilkic & Thomas Gries & Margarethe Pilichowski, 2009. "Stay in School or Start Working? - The Human Capital Investment Decision under Uncertainty and Irreversibility," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  2. Natasha Bilkic & Thomas Gries & Margarethe Pilichowski, 2009. "Stay at school or start working? - Optimal timing of leaving school under uncertainty and irreversibility," Working Papers 10, University of Paderborn, CIE Center for International Economics. [Downloadable!]
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This page was last updated on 2009-12-12.


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