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

Author

Listed:
  • Natasa Bilkic
  • Thomas Gries
  • Margarethe Pilichowski

Abstract

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.

Suggested Citation

  • 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 2825, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2825
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    References listed on IDEAS

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    Cited by:

    1. Anna Zaharieva, 2014. "On-the-Job Search and Optimal Schooling under Uncertainty and Irreversibility," Politica economica, Società editrice il Mulino, issue 2-3, pages 299-339.
    2. Thomas Gries & Natasa Bilkic, 2014. "Investment under Threat of Disaster," Working Papers CIE 77, Paderborn University, CIE Center for International Economics.

    More about this item

    Keywords

    human capital theory; uncertainty; irreversibility;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • I20 - Health, Education, and Welfare - - Education - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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