Year of Publication

2011

Degree Name

Doctor of Philosophy (PhD)

Document Type

Dissertation

College

Business and Economics

Department

Economics

First Advisor

Dr. Kenneth Troske

Abstract

Investment in higher education is typically considered as a static discrete-choice problem where students make post-secondary education choices usually right after high school (Heckman et al., 2006). This is largely aligned with Becker’s human capital theory. As Becker’s theory holds, students’ decisions can alter with the arrival of new information (Weisbrod, 1964). By relaxing the assumption certainty in the human capital model, student education decisions can be modeled using Weisbrod’s option value theory. According to this theory, students reevaluate their lifetime-utility maximizing decisions based on new information acquired in a sequential nature. Students face large uncertainties due to unexpected positive and negative shocks. This dissertation benefits from utilizing student earnings while in school to proxy for these shocks and opportunity costs. Students test both the schooling and labor market to gain new information to maximize their lifetime earnings. Since higher education choices are dynamic in nature, this dissertation benefits from the use of hazard models as these models explicitly account for time. Overall, the dissertation is largely focused on estimating the effect of time-variant and time-invariant variables on the timing of student higher education investment decision. Time to dropping out or transferring is directly correlated with the cost of education. As students take longer time to transfer or shorter time to drop out, acquiring a bachelor’s degree will take longer. These increases in the cost of education eventually decrease the supply of skilled labor and increase the burden on the state and taxpayers. Using a large administrative data from Kentucky Community and Technical College System (KCTCS) matched with administrative earnings data from Kentucky’s unemployment insurance department, results indicate that increases in student earnings increases time to transfer, decrease time to stopout early and decrease time to graduate. The opportunity cost of continuous enrollment is high and students weigh current events more than future events. Similarly, as students age, the number of years left to enjoy full benefits from another semester of education decreases and hence students are more likely to stopout earlier or transfer later as they age. Lastly, variables that were proxy for ability promote attendance, transfer and graduation.

Included in

Economics Commons

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