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Dynamic Education Signaling with Dropout Risk, Third Version

Author

Listed:
  • Francesc Dilme

    (Department of Economics, University of Bonn)

  • Fei Li

    (Department of Economics, University of North Carolina, Chapel Hill)

Abstract
This paper analyzes a dynamic education signaling model with dropout risk. Workers pay an education cost per unit of time and face an exogenous dropout risk before graduation. Since low-productivity workers’ cost of education is high, pooling with early dropouts helps them avoid a high education cost. In equilibrium, low-productivity workers choose to endoge- nously drop out over time, so the productivity of workers in college increases as the education process progresses. We find that the exogenous dropout risk generates rich dynamics in the endogenous dropout behavior of workers, and the maximum education length is decreasing in the prior about a worker being highly productive. We also extend the baseline model by allowing human capital accumulation.

Suggested Citation

  • Francesc Dilme & Fei Li, 2013. "Dynamic Education Signaling with Dropout Risk, Third Version," PIER Working Paper Archive 14-014, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 24 Apr 2014.
    • Handle: RePEc:pen:papers:14-014
    as

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    File URL: https://economics.sas.upenn.edu/sites/default/files/filevault/14-014.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Ursprung, Heinrich, 2019. "Endogenous maternity allowances as exemplified by academic promotion standards," Labour Economics, Elsevier, vol. 60(C), pages 1-11.

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    More about this item

    Keywords

    Dynamic Games; Dynamic Signaling; Dropout;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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