Dynamic Education Signaling with Dropout, Second Version
We study students' dropout behavior and its consequences in a dynamic signaling model. Workers pay an education cost per unit of time and cannot commit to a fixed education length. Workers face an exogenous dropout risk before graduation. Since low-productivity students' cost is high, pooling with early dropouts helps them to avoid a high education cost. In equilibrium, low-productivity students choose to endogenously drop out over time, so the productivity of students in college increases along the education process. We find that the maximum education length is decreasing in the prior about a student being highly productive. We characterize the joint dynamics of returns to education and the dropout rate and provide an explanation of the declining dropout rate over the time students spend in school. We also extend the baseline model by allowing human capital accumulation and show that the dynamics of the dropout rate are helpful in decomposing the returns to education into the signaling effect and the human capital accumulation effect.
|Date of creation:||03 Jun 2012|
|Date of revision:||03 Sep 2013|
|Contact details of provider:|| Postal: 3718 Locust Walk, Philadelphia, PA 19104|
Web page: http://economics.sas.upenn.edu/pier
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.:
- Kelly Bedard, 2001.
"Human Capital versus Signaling Models: University Access and High School Dropouts,"
Journal of Political Economy,
University of Chicago Press, vol. 109(4), pages 749-775, August.
- Kelly Bedard, "undated". "Human Capital Versus Signaling Models: University Access and High School Drop-outs," Claremont Colleges Working Papers 1999-01, Claremont Colleges.
- Kelly Bedard, "undated". "Human Capital Versus Signaling Models: University Access and High School Drop-outs," Canadian International Labour Network Working Papers 19, McMaster University.
- Ben Lester & Braz Camargo, 2011.
"Trading Dynamics in Decentralized Markets with Adverse Selection,"
2011 Meeting Papers
1300, Society for Economic Dynamics.
- Camargo, Braz & Lester, Benjamin, 2014. "Trading dynamics in decentralized markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 153(C), pages 534-568.
- Braz Camargo & Benjamin Lester, 2011. "Trading dynamics in decentralized markets with adverse selection," Working Papers 11-36, Federal Reserve Bank of Philadelphia.
- Ben Lester & Braz Camargo, 2010. "Trading Dynamics in Decentralized Markets with Adverse Selection," 2010 Meeting Papers 488, Society for Economic Dynamics.
- Maarten C. W. Janssen & Santanu Roy, 2002. "Dynamic Trading in a Durable Good Market with Asymmetric Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 257-282, February.
- Kremer, Ilan & Skrzypacz, Andrzej, 2007. "Dynamic signaling and market breakdown," Journal of Economic Theory, Elsevier, vol. 133(1), pages 58-82, March.
- Oksana Leukhina & Lutz A. Hendricks, 2011.
"The Return to College: Selection Bias and Dropout Risk,"
2011 Meeting Papers
311, Society for Economic Dynamics.
- Lutz Hendricks & Oksana Leukhina, 2014. "The Return to College: Selection Bias and Dropout Risk," CESifo Working Paper Series 4733, CESifo Group Munich.
- Hanming Fang, 2006. "Disentangling The College Wage Premium: Estimating A Model With Endogenous Education Choices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1151-1185, November.
- Jeroen M. Swinkels, 1999. "Education Signalling with Preemptive Offers," Review of Economic Studies, Oxford University Press, vol. 66(4), pages 949-970.
- Weiss, Andrew, 1983. "A Sorting-cum-Learning Model of Education," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 420-442, June.
- Francesc Dilmé, 2012. "Dynamic Quality Signaling with Moral Hazard," PIER Working Paper Archive 12-012, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Habermalz, Steffen, 2003. "Job Matching and the Returns to Educational Signals," IZA Discussion Papers 726, Institute for the Study of Labor (IZA).
- Brendan Daley & Brett Green, 2012. "Waiting for News in the Market for Lemons," Econometrica, Econometric Society, vol. 80(4), pages 1433-1504, 07.
When requesting a correction, please mention this item's handle: RePEc:pen:papers:13-048. 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: (Dolly Guarini)
If references are entirely missing, you can add them using this form.