Stepping Stone and Option Value in a Model of Postsecondary Education

Nicholas Trachter

No 14-3, Working Paper from Federal Reserve Bank of Richmond

Abstract: A stepping stone arises in risky environments with learning and transferable human capital. An example is the role played by academic two-year colleges in postsecondary education: Students, as they learn about the uncertain educational outcomes, can drop out or transfer up to harder and more rewarding schools, carrying a fraction of the accumulated human capital. A theory of education is built and contrasted empirically to find that i) option value explains a large part of returns to enrollment, ii) enrollment in academic two-year colleges is driven by the option to transfer up, and iii) the value of the stepping stone is small.

Keywords: stepping stone; investment under uncertainty; academic learning; postsecondary education; college education; returns to education (search for similar items in EconPapers)
JEL-codes: D83 I21 J24 (search for similar items in EconPapers)
Pages: 91 pages
Date: 2014-02-04
New Economics Papers: this item is included in nep-edu and nep-hrm
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Citations: View citations in EconPapers (10)

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Journal Article: Stepping stone and option value in a model of postsecondary education (2015)
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