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American Economic Journal: Applied Economics: Vol. 4 No. 1 (January 2012)

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An Empirical Investigation of the Option Value of College Enrollment

Article Citation

Stange, Kevin M. 2012. "An Empirical Investigation of the Option Value of College Enrollment." American Economic Journal: Applied Economics, 4(1): 49-84.

DOI: 10.1257/app.4.1.49

Abstract

This paper quantifies the option value arising from sequential schooling decisions made in the presence of uncertainty and learning about academic ability. College attendance has option value since enrolled students have the option, but not obligation, to continue in school after learning their aptitude and tastes. I estimate that option value accounts for 14 percent of the total value of the opportunity to attend college for the average high school graduate and is greatest for moderate-aptitude students. Students' ability to make decisions sequentially in response to new information increases welfare and also makes educational outcomes less polarized by background. (JEL D83, I23)

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Authors

Stange, Kevin M. (U MI)

JEL Classifications

D83: Search; Learning; Information and Knowledge; Communication; Belief
I23: Higher Education and Research Institutions

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