A dynamic Roy model of academic specialization

Abstract

This paper generalizes the canonical model of human capital accumulation through schooling to endogenize the process of academic specialization. It provides the solution to a class of dynamic investment problems with switching and stopping under sequential uncertainty. Under mild assumptions, the model's optimal policy has a particularly simple form that can be reduced to the comparison of independent indices. The optimal policy implies that schooling should begin with a period of general education, common to all students, followed by a period of gradual academic specialization before graduation. At the microeconomic level, it is consistent with the dynamics of student course taking observed in the data and the outcomes of educational interventions studied in the literature. At the macroeconomic level, its predictions are consistent with models of how education should adapt to changes in the speed and scope of technological change in labor markets.