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

Author

Listed:
  • Saïd Hanchane

    (LEST - Laboratoire d'Economie et de Sociologie du Travail - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique)

  • Abraham Lioui

    (Department of Economics [Israël] - Bar-Ilan University [Israël])

  • David Touahri

    (LEST - Laboratoire d'Economie et de Sociologie du Travail - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Saïd Hanchane & Abraham Lioui & David Touahri, 2006. "Human capital as a risky asset and the effect of uncertainty on the decision to invest," Working Papers halshs-00010139, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00010139
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00010139
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    References listed on IDEAS

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    Cited by:

    1. Natasha Bilkic & Thomas Gries & Margarethe Pilichowski, 2009. "Stay at school or start working? - Optimal timing of leaving school under uncertainty and irreversibility," Working Papers CIE 10, Paderborn University, CIE Center for International Economics.
    2. Bilkic, N. & Gries, T. & Pilichowski, M., 2012. "Stay in school or start working? — The human capital investment decision under uncertainty and irreversibility," Labour Economics, Elsevier, vol. 19(5), pages 706-717.
    3. Chakraborty, Bidisha & Chakraborty, Kamalika, 2016. "Low Level Equilibrium Trap, Unemployment, School Quality, Child Labour and Human Capital Formation," MPRA Paper 74621, University Library of Munich, Germany.
    4. Kamalika Chakraborty & Bidisha Chakraborty, 2018. "Low level equilibrium trap, unemployment, efficiency of education system, child labour and human capital formation," Journal of Economics, Springer, vol. 125(1), pages 69-95, September.

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