 Dynamic Education Signaling with Dropout, Second VersionFrancesc Dilme and Fei Li () PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania Abstract: 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. Keywords: Dynamic Education Signaling; Dropout (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:13-048 Access Statistics for this paper More papers in PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 133 South 36th Street, Philadelphia, PA 19104. Contact information at EDIRC. |
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