We analyse how progressive taxation and education subsidies affect schooling decisions when the returns to education are stochastic. We use the theory of real options to solve the problem of education choice in a dynamic, life-cycle consistent, stochastic model. We show that education attainment...

The reservation wage is an integral part of most theories of involuntary unemployment. We use panel data to examine the empirical determinants of the reservation wage - in particular the inßuence of previous wages - and consider what this implies for the evolution of the natural rate of...

We apply a new estimator to the measurement of the economic returns to education. We control for endogenous education, unobserved ability and measurement error using only the natural heteroscedasticty of wages and education attainment. Our prefered estimate, 6.07%, is closer to the OLS estimate...