Open AccessStepping stone and option value in a model of postsecondary education
Author(s) -
Trachter Nicholas
Publication year - 2015
Publication title -
quantitative economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.062
H-Index - 27
eISSN - 1759-7331
pISSN - 1759-7323
DOI - 10.3982/qe326
Subject(s) - human capital , value (mathematics) , postsecondary education , drop out , stepping stone , mathematics education , higher education , economics , demographic economics , psychology , economic growth , mathematics , statistics , unemployment
A stepping stone arises in risky environments with learning and transferrable 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.