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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.
    • Handle: RePEc:ces:ceswps:_2825
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    References listed on IDEAS

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    Cited by:

    1. Katja Seidel, 2021. "The transition from School to Post-Secondary Education – What factors affect educational decisions?," Working Paper Series in Economics 398, University of Lüneburg, Institute of Economics.
    2. Gries, Thomas & Naudé, Wim, 2022. "Breakthroughs, Backlashes and Artificial General Intelligence: An Extended Real Options Approach," IZA Discussion Papers 15077, Institute of Labor Economics (IZA).
    3. Yang, Guanyi & Casner, Ben, 2021. "How much does schooling disutility matter?," Research in Economics, Elsevier, vol. 75(1), pages 87-95.
    4. 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.
    5. Steffen Merkel & Sascha L. Schmidt & Benno Torgler, 2017. "The effect of individual uncertainty on the specificity of human capital: empirical evidence from career developments in professional soccer," Applied Economics, Taylor & Francis Journals, vol. 49(21), pages 2083-2095, May.
    6. Mizuki Tsuboi, 2018. "Stochastic accumulation of human capital and welfare in the Uzawa–Lucas model: an analytical characterization," Journal of Economics, Springer, vol. 125(3), pages 239-261, November.
    7. Thomas Gries & Natasa Bilkic, 2014. "Investment under Threat of Disaster," Working Papers CIE 77, Paderborn University, CIE Center for International Economics.

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    More about this item

    Keywords

    human capital theory; uncertainty; irreversibility;
    All these keywords.

    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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