The Demand for and Return to Education When Education Outcomes are Uncertain
The vast literature on human capital and earnings assumes that individuals know in advance that they will complete a particular program of schooling. This paper treats education as a sequential choice that is made under uncertainty. A simple two period structural model is used to explore the effects of ability, high school preparation, preferences for schooling, the borrowing rate, and ex post payoffs to college on the probability of various post secondary college outcomes and the ex ante return to starting college. The model provides the basis for a simple empirical method of accounting for uncertainty about educational outcomes and for nonlinearity in the relationship between years of education and earnings when estimating the expected return to the first year of college. I present estimates of the effects of gender, aptitude, high school curriculum, family background characteristics, and other variables on the expected return to starting college.
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| Length: | |
| Date of creation: | May 1991 |
| Date of revision: | |
| Publication status: | published as Journal of Labor Economics,11, no. 1, Part 1, January 1993, p. 48-83 |
| Handle: | RePEc:nbr:nberwo:3714 |
| Note: | LS |
| Contact details of provider: | Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Web page: http://www.nber.org Email: More information through EDIRC
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References listed on IDEAS
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- David Card & Alan Krueger, 1990. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," NBER Working Papers 3358, National Bureau of Economic Research, Inc.
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- 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.
- Kevin Lang & David Kropp, 1986. "Human Capital Versus Sorting: The Effects of Compulsory Attendance Laws," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 609-624.
- Kathryn L. Shaw, 1985. "Occupational change, employer change, and the transferability of skills," Working Paper Series / Economic Activity Section 55, Board of Governors of the Federal Reserve System (U.S.).
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