Real Options and Human Capital Investment

By B. Jacobs. Social Science Research Network, 2007

120 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/49ec3c2fa3e48a0585daa9f161b2b446ec1dec75

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Citations in the corpus

Intellectual Property Protection and the Formation of Entrepreneurial Growth Aspirations (2010, background): “Education increases an individual’s value in the job market, such that the individual’s job market value is roughly commensurate with the time and effort invested in education (Dunn et al., 2000; Jacobs, 2007).”