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Stepping stone and option value in a model of postsecondary education

Listed author(s):
  • Nicholas Trachter

A stepping stone arises in risky environments with learning and transferrable human capital. An example is the role played by academic two‐year colleges in postsecondary education: Students, as they learn about the uncertain educational outcomes, can drop out or transfer up to harder and more rewarding schools, carrying a fraction of the accumulated human capital. A theory of education is built and contrasted empirically to find that (i) option value explains a large part of returns to enrollment, (ii) enrollment in academic two‐year colleges is driven by the option to transfer up, and (iii) the value of the stepping stone is small.

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Article provided by Econometric Society in its journal Quantitative Economics.

Volume (Year): 6 (2015)
Issue (Month): 1 (March)
Pages: 223-256

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Handle: RePEc:wly:quante:v:6:y:2015:i:1:p:223-256
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