Human Capital Investment and Labor Supply under Uncertainty

Arthur Snow and Ronald Warren

International Economic Review, 1990, vol. 31, issue 1, 195-206

Abstract: The authors extend the theory of human capital investment under uncertainty by incorporating postinvestment labor supply as a choice variable. They show that human capital investment decreases in response to an increase in risk about its return if such investment is an inferior activity and preferences exhibit decreasing risk aversion. However, if investment is normal, then the effect of an increase in risk is indeterminate. These results highlight the importance of obtaining empirical evidence on the income elasticity of demand for human capital investment for arriving at refutable hypotheses about the effect of risk. Copyright 1990 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1990
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