Real Options and Human Capital Investment

This paper extends the standard human capital model with real options. Real options influence investment behavior when risky investments in human capital are irreversible and individuals can affect the timing of the investment. Option values make individuals more reluctant to invest in human capital and, as a result, required returns on the investment increase. Real options may help to explain a larger human capital premium for higher education, smaller responsiveness of higher education investments to financial incentives, and larger sensitivity of higher education to low-return outcomes and human capital risks. Higher tax rates (or lower subsidies) depress human capital investments, but to a lesser extent than in the standard human capital model. A flat income tax remains neutral if education expenditures are fully deductible.

• Publication year

  2007

• Venue

  Social Science Research Network

• Publication date

  2007-05-01

• Fields of study

  Economics

• Identifiers
  DOI 10.1016/J.LABECO.2007.06.008
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

• Environmental policy under model uncertainty: a robust optimal control approach

  2011cited by this paper
• Behavior Under Social Pressure: Empty Italian Stadiums and Referee Bias

  2010cited by this paper
• Are Fiscal Adjustments Less Successful in Decentralized Governments?

  2009cited by this paper
• A multivariate long-memory model with structural breaks

  2009cited by this paper
• A Theory of Tolerance

  2009cited by this paper
• Exports, Unemployment and the Welfare State

  2009cited by this paper
• Commuting Subsidies With Two Transport Modes

  2008cited by this paper
• Dutch Disease Scare in Kazakhstan: Is it real?

  2008cited by this paper
• Anti-Competitive Conduct, In-House R&D, and Growth

  2008cited by this paper
• Dynamic Choice, Independence and Emotions

  2008cited by this paper
• Monetary Policy in a Channel System

  2008cited by this paper
• Health During Industrialization: Evidence from the 19th Century Pennsylvania State Prison System

  2008cited by this paper
• Fiscal Policies and Business Cycles in an Enlarged Euro Area

  2008cited by this paper
• Intergenerational Risk-Sharing and Risk-Taking of a Pension Fund

  2008cited by this paper
• Substitutability and Protectionism: Latin America's Trade Policy and Imports from China and India

  2007cited by this paper
• Aggregate Wage Flexibility in Selected New EU Member States

  2007cited by this paper
• Fundamental Determinants of School Efficiency and Equity: German States as a Microcosm for OECD Countries

  2007cited by this paper
• Tax Morale After the Reunification of Germany: Results from a Quasi-Natural Experiment

  2007cited by this paper
• The Role of Immigration in Sustaining the Social Security System: A Political Economy Approach

  2007cited by this paper
• Earnings Risk and Demand for Higher Education: A Cross-Section Test for Spain

  2007cited by this paper
• Majority-Efficiency and Competition-Efficiency in a Binary Policy Model

  2007cited by this paper
• The Benefits of Being Economics Professor A (and Not Z)

  2007cited by this paper
• Institutional Quality: A Panel Analysis *

  2007cited by this paper
• Redistribution or Education? The Political Economy of the Social Race

  2007cited by this paper
• On the Modeling of the Income Distribution Business Cycle Dynamics

  2007cited by this paper
• Competition for Firms in an Oligopolistic Industry: Do Firms or Countries Have to Pay?

  2007cited by this paper
• Price-Dependent Profit Sharing as an Escape from the Bertrand Paradox

  2007cited by this paper
• The Money-Age Distribution: Empirical Facts and Limited Monetary Models

  2007cited by this paper
• Education choice under uncertainty: implications for public policy

  2007cited by this paper
• Wholesale Price Discrimination and Parallel Imports

  2007cited by this paper
• Cointegration Analysis with Mixed-Frequency Data

  2007cited by this paper
• T HE B AZAAR E FFECT , U NBUNDLING OF C OMPARATIVE A DVANTAGE , AND M IGRATION

  2007cited by this paper
• Gains and Losses of India-China Trade Cooperation - A Gravity Model Impact Analysis

  2007cited by this paper
• Financial Stability and Monetary Policy - A Framework

  2007cited by this paper
• Does the Euro-Zone Diverge? A Stress Indicator for Analyzing Trends and Cycles in Real GDP and Inflation

  2007cited by this paper
• What Explains Germany's Rebounding Export Market Share?

  2007cited by this paper
• Prudent Budgetary Policy: Political Economy of Precautionary Taxation

  2007cited by this paper
• Optimal Regulation of Auditing

  2007cited by this paper
• African-American and White Inequality in the American South: Evidence from the 19th Century Missouri State Prison

  2007cited by this paper
• The Free Movement of Inactive Citizens in the EU - A Challenge for the European Welfare State?

  2007cited by this paper
• Intercompany Loans and Profit Shifting - Evidence from Company-Level Data

  2007cited by this paper
• Unemployment and Gang Crime: Could Prosperity Backfire?

  2007cited by this paper
• Push or Pull? An Empirical Analysis of the Demand for Individual Project Grants from the Swiss National Science Foundation

  2007cited by this paper
• Real Exchange Rates in Small Open OECD and Transition Economies: Comparing Apples with Oranges?

  2006cited by this paper
• Handbook of the Economics of Education

  2006cited by this paper
• Raising taxes through Equalization ∗

  2006cited by this paper
• Guide to Reform of Higher Education: A European Perspective

  2006cited by this paper
• Reihe Ökonomie Economics Series Fundamentals , Misvaluation , and Investment : The Real Story

  2006cited by this paper
• Redistribution and Education Subsidies are Siamese Twins

  2005cited by this paper
• Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond

  2005cited by this paper
• Estimation of Educational Borrowing Constraints Using Returns to Schooling

  2004influential reference
• Inequality in America: What Role for Human Capital Policies?

  2004cited by this paper
• The Equity Premium in Retrospect

  2003cited by this paper
• The Returns to Education: Microeconomics

  2003influential reference
• An Empirical Analysis of the Risk Properties of Human Capital Returns

  2003influential reference
• Human Capital Policy

  2003cited by this paper
• Education Choice under Uncertainty

  2002cited by this paper
• The Equity Premium

  2002cited by this paper
• Firm-Specific Human Capital as a Shared Investment

  2001cited by this paper
• Schooling, Family Background, and Adoption: Does Family Income Matter?

  2001cited by this paper
• Firm-Specific Human Capital as a Shared Investment: Comment

  2001cited by this paper
• The Dynamics of Educational Attainment for Black, Hispanic, and White Males

  2001cited by this paper
• Dropout and Enrollment Trends in the Post-War Period: What Went Wrong in the 1970s?

  2000cited by this paper
• Precautionary Demand for Education, Inequality, and Technological Progress

  2000cited by this paper
• The Causal Effect of Education on Learning

  1999influential reference
• The Dynamics of Educational Attainment for Blacks, Hispanics, and Whites

  1999cited by this paper
• Changes in the Wage Structure and Earnings Inequality

  1999cited by this paper
• Born to be Unemployed: Unemployment and Wages Over the Business Cycle ∗

  1999cited by this paper
• Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labor Earnings with Heterogeneous Agents

  1998cited by this paper
• Post-secondary fees and the decision to attend a university or a community college

  1998influential reference
• Rising Public College Tuition and College Entry: How Well Do Public Subsidies Promote Access to College?

  1995cited by this paper
• College Entry by Blacks since 1970: The Role of College Costs, Family Background, and the Returns to Education

  1994cited by this paper
• Investment Under Uncertainty.

  1994cited by this paper
• A Theory of the Welfare State

  1994cited by this paper
• Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition

  1993cited by this paper
• Credit Rationing in Markets with Imperfect Information

  1981cited by this paper
• Taxation, Human Capital, and Uncertainty

  1979cited by this paper
• A Life-Cycle Model of Earnings, Learning, and Consumption

  1976cited by this paper
• Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education

  1975cited by this paper
• The Effect of Risk on the Investment in Human Capital

  1974cited by this paper
• The Option Value of Education and the Optimal Path for Investment in Human Capital

  1973cited by this paper
• The Economic Value of Education

  1963cited by this paper
• On-the-Job Training: Costs, Returns, and Some Implications

  1962cited by this paper
• Investment in Human Capital and Personal Income Distribution

  1958cited by this paper
• Les organisations-partenaires / The Partner Organizations •École des Hautes Études Commerciales

  year unknowncited by this paper

• The Three Axes of Success: A Three-Dimensional Framework for Career Decision-Making

  2026cites this paper
• From disclosure to decision: how climate risk shapes firms’ human capital strategies in China

  2025cites this paper
• From green to growth: The effect of Go Green on entrepreneurial growth aspirations

  2025cites this paper
• Digital technologies in managing the competitiveness of commercial real estate

  2023cites this paper
• Personal determinants of early-stage strategic entrepreneurship: an empirical comparison of Vietnam and Taiwan

  2023cites this paper
• An Approach to Assessing Construction Enterprise Intellectual Capital in the Digital Age

  2021cites this paper
• Business analysis of factors and conditions for the development of sugar production organizations

  2021cites this paper
• Optimal investment in human capital under migration uncertainty

  2021cites this paper
• Online education in Russia: status and development trends

  2021cites this paper
• Approach to assessment of the degree of adaptivity of business associations to external challenges

  2021cites this paper
• Process-cost Analysis of Labor Results in Telecommunications Companies

  2020cites this paper
• Prerequisites and prospects for digitalization in the Arctic climate

  2020cites this paper
• An Exploratory Study On Human Capital Investments

  2020cites this paper
• The formation of the enterprises human capital in the context of digitalization

  2020cites this paper
• Welfare state generosity and student performance: Evidence from international student tests 1980-2003

  2019cites this paper
• Consumer Risk Preferences and Higher Education Enrollment Decisions

  2018cites this paper
• The effect of individual uncertainty on the specificity of human capital: empirical evidence from career developments in professional soccer

  2017cites this paper
• Temporary employment contracts in academia: a real option view

  2017cites this paper
• The Trifurcation of the Labor Markets in the Networked, Knowledge-Driven, Global Economy

  2017cites this paper
• Why firms do and don't offer apprenticeships

  2017cites this paper
• Real options in the laboratory: An experimental study of sequential investment decisions

  2016cites this paper
• The Trifurcation of the Labor Markets in the Networked, Knowledge-Driven, Global Economy

  2016cites this paper
• Strategic use of Temporary Employment Contracts as Real Options

  2016cites this paper
• Human Capital Investment In Poor Households

  2016cites this paper
• Can We Develop Enough Skills for a Robust Manufacturing Industry?

  2016cites this paper
• Private Tutoring, Wealth Constraint and Higher Education

  2015cites this paper
• Schooling as a Risky Investment: A Survey of Theory and Evidence

  2014cites this paper
• Raumplanung: Rückzonungen sollen Einzonungen ermöglichen

  2014cites this paper
• The Benefits, Costs, and Financing of Technical and Vocational Education and Training

  2014cites this paper
• Why Do We Ignore the Risk in Schooling Decisions?

  2014cites this paper
• Human Capital and Public Policy

  2014influential citation
• Preface IDENTIFICATION , MEASUREMENT AND FINANCIAL VALUATION OF INTANGIBLES : DIFFICULT AND RELATED TASKS

  2014cites this paper
• Skill Development in Middle Level Occupations: The Role of Apprenticeship Training

  2013cites this paper
• Real option, human capital investment returns and higher educational policy

  2013cites this paper
• Imperfect capital markets and human capital accumulation

  2013cites this paper
• A real options approach to labour shifts planning under different service level targets

  2013cites this paper
• On-the-Job Search and Optimal Schooling under Uncertainty and Irreversibility

  2013cites this paper
• Strategic Tax Collection and Fiscal Decentralization: The Case of Russia

  2013cites this paper
• Temporary employment contracts and the application of real options theory: a case study in the Irish third level academic sector

  2013influential citation
• Transfer Pricing or Formula Apportionment? Tax-Induced Distortions of Multinationals' Investment and Production Decisions

  2012cites this paper
• Effects of double qualifications on various dimensions of job satisfaction

  2012cites this paper
• Saving and Learning: Theory and Evidence from Saving for Child's College

  2012cites this paper
• The Viability of Community Tourism in Least Developed Countries: The case of Zanzibar

  2012influential citation
• Lumpy Price Adjustments: A Microeconometric Analysis

  2011cites this paper
• Deterministic versus stochastic seasonal fractional integration and structural breaks

  2011cites this paper
• Sorting on the labour market: A literature overview and theoretical framework

  2011cites this paper
• Regulatory Burden, Rule of Law, and Entry of Strategic Entrepreneurs: An International Panel Study

  2011cites this paper
• Establishment of a temporary workforce transaction mechanism using a real option approach

  2011cites this paper
• Income taxation of couples and the tax unit choice

  2011cites this paper
• ANALYSIS OF TWO-YEAR COLLEGES: TRANSFER, RETENTION AND GRADUATION

  2011cites this paper
• Human capital investment and optimal portfolio choice

  2011cites this paper
• Welfare state generosity and student performance: Evidence from international student tests

  2011cites this paper
• Az oktatás opciós értéke

  2010cites this paper
• A Real Options Framework for Analyzing Program Participation as Human Capital Investments: The Case of the Average Crop Revenue Election (ACRE) Program

  2010cites this paper
• Resale Price Maintenance and Restrictions on Dominant Firm and Industry-Wide Adoption

  2010cites this paper
• Bribery versus extortion: allowing the lesser of two evils

  2010cites this paper
• Human Capital, Retirement and Saving

  2010cites this paper
• A Life-Cycle Theory of Human Capital Formation , Pension Saving , and Retirement Bas

  2010cites this paper
• Biodiversity and Geography

  2010cites this paper
• Intellectual Property Protection and the Formation of Entrepreneurial Growth Aspirations

  2010influential citation
• Migration Options for Skilled Labor and Optimal Investment in Human Capital

  2010cites this paper
• Abitur and What Next? Reasons for Gaining Double Qualifications in Germany

  2010cites this paper
• Labor Market Regulation and the Legal System

  2010cites this paper
• Stay in School or Start Working? - The Human Capital Investment Decision under Uncertainty and Irreversibility

  2009cites this paper
• Stay at school or start working? - Optimal timing of leaving school under uncertainty and irreversibility

  2009cites this paper
• Incorporating Affirmative Action into the Welfare State

  2009cites this paper
• When to Start a New Firm? : Modelling the Timing of Novice and Serial Entrepreneurs

  2009cites this paper
• Profit shifting in the EU: evidence from Germany

  2009cites this paper
• Exchange Rate Volatility and Growth in Emerging Europe and East Asia

  2009cites this paper
• The Price Puzzle Revisited: Can the Cost Channel Explain a Rise in Inflation after a Monetary Policy Shock?

  2009cites this paper
• Is Prescott right? Welfare state policies and the incentives to work, learn, and retire

  2009cites this paper
• The economics of politically-connected firms

  2009cites this paper
• Natural disasters and the dynamics of intangible assets

  2009cites this paper
• How do Germans react to the commuting allowance

  2009cites this paper
• Pricing the ecosystem and taxing ecosystem services: A general equilibrium approach

  2009cites this paper
• Progressive Taxation, Tax Exemption, and Irreversible Investment under Uncertainty

  2008cites this paper
• Equal sacrifice and fair burden-sharing in a public goods economy

  2008cites this paper
• Does a Generous Welfare State Crowd Out Student Achievement? Panel Data Evidence from International Student Tests

  2008influential citation
• Cente Unive Warb 33098 Er for Int Ersity of Burger S 8 Pader

  2008influential citation
• It is a Theft But Not a Crime

  2008cites this paper
• HAW im Dialog

  2008cites this paper
• Opciones reales en la valoración de intangibles: la percepción de los directivos en el País Vasco

  2008cites this paper
• Downward Nominal Wage Rigidity in the OECD

  2008cites this paper
• Strategic R&D with Knowledge Spillovers and Endogenous Time to Complete

  2007cites this paper
• Moral Hazard and the Composition of Transfers: Theory With an Application to Foreign Aid

  2007cites this paper
• L ONG R UN AND C YCLICAL D YNAMICS IN THE US S TOCK M ARKET

  2007cites this paper
• Preemption, Start-Up Decisions and the Firms' Capital Structure

  2007cites this paper
• Determinants of Direct Democracy

  2007cites this paper
• Greasing the wheels of entrepreneurship

  2007cites this paper
• Public Education Expenditure, Growth and Welfare

  2007cites this paper
• Adding Geography to the New Economic Geography

  2007cites this paper
• Hierarchical Structure in Brazilian Industrial Firms: an Econometric Study

  2007cites this paper
• Political Pressures and Monetary Mystique

  2007cites this paper
• Is the Notification of Monitoring a Threat to the Unemployed? A Regression Discontinuity Approach

  2007cites this paper
• LEAKY BUCKET IN THE REAL WORLD: ESTIMATING INEQUALITY AVERSION USING SURVEY DATA

  2007cites this paper
• O VERPROTECTED P OLITICIANS

  2007cites this paper
• Monetary Commitment, Institutional Constraints and Inflation: Empirical Evidence for OECD Countries Since the 1970s

  2007cites this paper
• Negative Intra-Group Externalities in Two-Sided Markets

  2007cites this paper
• Does High Inflation Cause Central Bankers to Lose Their Job? Evidence Based on a New Data Set

  2007cites this paper
• Migrating Football Players, Transfer Fees and Migration Controls

  2007cites this paper