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...

This paper is concerned with the relationship between class size and the student outcome length of time in post-compulsory schooling. Research on this topic has been problematic partly because omitted unobservables, like parents' incomes and education levels, are likely to be correlated with...