Stepping stone and option value in a model of postsecondary education

Abstract

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.

Estimation of Dynamic Discrete Choice Models by Maximum Likelihood and the Simulated Method of Moments

“… 13 Other models taking into account option values have been proposed by Comay et al (1973), Cunha et al (2007), Heckman et al (2014a), and Trachter (2014). See also Cameron and Heckman (1993).…”

Learning and Life Cycle Patterns of Occupational Transitions

“…As in Trachter (2014), let p 0 = f (X β + ε), ε ∼ N (0, 1), where f (·) denotes the function mapping observable (i.e. X) and unobservable (i.e.…”

Estimation of Dynamic Discrete Choice Models by Maximum Likelihood and the Simulated Method of Moments

“…13 Other models taking into account option values have been proposed by Comay et al (1973), Cunha et al (2007), Heckman et al (2014a), andTrachter (2014). See also Cameron and Heckman (1993).…”