Investment in Human Capital and the Appropriate Discount Rate

Renas, Stephen and Cebula, Richard (1971): Investment in Human Capital and the Appropriate Discount Rate. Published in: Social and Economic Studies , Vol. 21, No. 1 (29 March 1972): pp. 61-71.

Abstract

This study develops a theory of investment in human capital which rests on the assumption that an individual will choose to remain in school if the present value of the future income stream associated with additional education exceeds that associated with the present level of education. The paper hypothesizes that the marginal rate of time preference is a function of one's socioeconomic status and thereby provides a systematic framework for explaining dropout rates.

• Item Type: MPRA Paper
• Language: English
• Keywords: investment in human capital; collective decision-making; rate of time preference; poverty; school drop-out rates
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory; D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance; I - Health, Education, and Welfare > I2 - Education and Research Institutions > I24 - Education and Inequality

References

Gary S. Becker, "Underinvestment in College Education?" American Economic Review, 50 (May, 1960): 353-4.

John Conlisk, "Determinants of School Enrollment and School Performance," Journal of Human Resources, 4 (Spring, 1969): 140-57.

Giora Hanoch, "An Economic Analysis of Earnings and Schooling," Journal of Human Resources, 2 (Summer, 1967): 310-29.

W. Lee Hansen, "Total and Private Rates of Return to Investment in Schooling," Journal of Political Economy, 71 (April, 1963): 128-40.

Stanley Masters, "The Effect of Family Income on Children's Education: Some Findings on Inequality of Opportunity," Journal of Human Resources, 4 (Spring, 1969): 158-75.

Charles A. Nam, A Lewis Rhodes, and Robert E. Herriot, "School Retention by Race, Religion, and Socioeconomic Status," Journal of Human Resources, 3 (Spring, 1968): 171-90.