Education choice under uncertainty and public policy

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Title: Education choice under uncertainty and public policy
Authors: Hogan, Vincent (Vincent Peter)
Walker, Ian
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Date: Jan-2003
Abstract: We analyse how progressive taxation and education subsidies affect schooling decisions when the returns to education are stochastic. We use the theory of real options to solve the problem of education choice in a dynamic, life-cycle consistent, stochastic model. We show that education attainment will be an increasing function of the risk associated with education. Furthermore, this result holds whether or not agents can borrow in order to pay for education and regardless of the degree of risk aversion. We also examine the link between consumption over the life-cycle and education choice to show that higher initial wealth will usually - but not always - have a positive effect on education attainment. Finally we show that progressive taxes will tend to reduce education attainment for the poor but increase it for the rich.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Series/Report no.: UCD Centre for Economic Research Working Paper Series; WP03/02
Copyright (published version): UCD School of Economics 2003
Keywords: Education choiceDynamic optimizationOptimal stoppingUncertainty
Subject LCSH: Education and state--Great Britain
Human capital
Education and state--Europe
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Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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