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Education Choice under Uncertainty - Implications for Public Policy

Author

Listed:
  • Vincent Hogan

    (University College of Dublin)

  • Ian Walker

    (University of Warwick)

Abstract

We analyse how progressive taxation and education subsidies affect schooling decisions when the returns to education are stochastic. We use the theory of real options to solve the problem of education choice in a dynamic stochastic model. We show that education attainment will be an increasing function of the risk associated with education. Furthermore, this result holds regardless of the degree of risk aversion. We also show that progressive taxes will tend to increase education attainment.

Suggested Citation

  • Vincent Hogan & Ian Walker, 2006. "Education Choice under Uncertainty - Implications for Public Policy," Working Papers 200615, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:200615
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    References listed on IDEAS

    as
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    6. Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 327-350, April.
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    More about this item

    Keywords

    Education Choice; Dynamic Optimization; Optimal Stopping; Uncertainty;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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