IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

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

  • Natasa Bilkic
  • Thomas Gries
  • Margarethe Pilichowski

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

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

in new window

Date of creation: 2009
Date of revision:
Handle: RePEc:ces:ceswps:_2825
Contact details of provider: Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Jacobs, Bas, 2007. "Real options and human capital investment," Labour Economics, Elsevier, vol. 14(6), pages 913-925, December.
  2. Christian Belzil & Marco Leonardi, 2009. "Risk aversion and schooling decisions," Working Papers hal-00411099, HAL.
  3. Chong-En Bai & Yijiang Wang, 2003. "Uncertainty in Labor Productivity and Specific Human Capital Investment," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 651-676, July.
  4. Flavio Cunha & James Heckman & Salvador Navarro, 2005. "Separating uncertainty from heterogeneity in life cycle earnings," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 191-261, April.
  5. Joop Hartog & Hans Van Ophem & Simona Maria Bajdechi, 2007. "Simulating the Risk of Investment in Human Capital," Education Economics, Taylor & Francis Journals, vol. 15(3), pages 259-275.
  6. David Card, 2000. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," NBER Working Papers 7769, National Bureau of Economic Research, Inc.
  7. Johnson, Thomas, 1970. "Returns from Investment in Human Capital," American Economic Review, American Economic Association, vol. 60(4), pages 546-60, September.
  8. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-15, September.
  9. Hogan, Vincent & Walker, Ian, 2007. "Education choice under uncertainty: Implications for public policy," Labour Economics, Elsevier, vol. 14(6), pages 894-912, December.
  10. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, vol. 64(6), pages 950-63, December.
  11. Carneiro, Pedro & Hansen, Karsten T. & Heckman, James J., 2003. "Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College Choice," IZA Discussion Papers 767, Institute for the Study of Labor (IZA).
  12. Heckman, James J. & Lochner, Lance John & Todd, Petra E., 2003. "Fifty Years of Mincer Earnings Regressions," IZA Discussion Papers 775, Institute for the Study of Labor (IZA).
  13. James J. Heckman & Lance J. Lochner & Petra E. Todd, 2008. "Earnings Functions and Rates of Return," Journal of Human Capital, University of Chicago Press, vol. 2(1), pages 1-31.
  14. Ana Ferrer & W. Craig Riddell, 2008. "Education, credentials, and immigrant earnings," Canadian Journal of Economics, Canadian Economics Association, vol. 41(1), pages 186-216, February.
  15. Altonji, Joseph G, 1993. "The Demand for and Return to Education When Education Outcomes Are Uncertain," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 48-83, January.
  16. Burton A. Weisbrod, 1962. "Education and Investment in Human Capital," Journal of Political Economy, University of Chicago Press, vol. 70, pages 106.
  17. Kevin Denny & Colm Harmon, 2001. "Testing for sheepskin effects in earnings equations: evidence for five countries," Applied Economics Letters, Taylor & Francis Journals, vol. 8(9), pages 635-637.
  18. Christian Belzil & Marco Leonardi, 2006. "Can Risk Aversion Explain Schooling Attainments? Evidence From Italy," Working Papers 0607, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  19. A. Skalli, 2003. "Are Successive Investments in Education Equally Worthwile ? Endogeneous Schooling Decisions and Non-Linearities in the Earnings-schooling Relationship," Working Papers ERMES 0318, ERMES, University Paris 2.
  20. Pedro Carneiro & Karsten T. Hansen & James J. Heckman, 2003. "Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College," NBER Working Papers 9546, National Bureau of Economic Research, Inc.
  21. Mary Silles, 2007. "Sheepskin effects in the returns to education," Applied Economics Letters, Taylor & Francis Journals, vol. 15(3), pages 217-219.
  22. Comay, Yochanan & Melnik, A & Pollatschek, M A, 1973. "The Option Value of Education and the Optimal Path for Investment in Human Capital," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 421-35, June.
  23. 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.
  24. Groot, Wim & Oosterbeek, Hessel, 1992. "Optimal investment in human capital under uncertainty," Economics of Education Review, Elsevier, vol. 11(1), pages 41-49, March.
  25. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
  26. Williams, Joseph T, 1978. "Risk, Human Capital, and the Investor's Portfolio," The Journal of Business, University of Chicago Press, vol. 51(1), pages 65-89, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2825. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.