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An Empirical Investigation of the Option Value of College Enrollment

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  • Kevin M. Stange

Abstract

This paper quantifies the option value arising from sequential schooling decisions made in the presence of uncertainty and learning about academic ability. College attendance has option value since enrolled students have the option, but not obligation, to continue in school after learning their aptitude and tastes. I estimate that option value accounts for 14 percent of the total value of the opportunity to attend college for the average high school graduate and is greatest for moderate-aptitude students. Students' ability to make decisions sequentially in response to new information increases welfare and also makes educational outcomes less polarized by background. (JEL D83, I23)

Suggested Citation

  • Kevin M. Stange, 2012. "An Empirical Investigation of the Option Value of College Enrollment," American Economic Journal: Applied Economics, American Economic Association, vol. 4(1), pages 49-84, January.
  • Handle: RePEc:aea:aejapp:v:4:y:2012:i:1:p:49-84
    Note: DOI: 10.1257/app.4.1.49
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions

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    1. An Empirical Investigation of the Option Value of College Enrollment (American Economic Journal: Applied Economics 2012) in ReplicationWiki

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