We set the opportunity cost of going to college equal to the present discounted value
of the wage earnings of a high school graduate that she would have earned by working for four years instead of going to college.
In summary, in the model, the rigid expected present discounted value
of wages in newly formed matches amplifies the response of firm's surplus to productivity shocks.
In words, (12) states that along optimal paths (for interior solutions, 0 < R < J) the marginal loss of utility (in terms of leisure) as a result of putting retirement one period off must equal the marginal gain of utility (in terms of lifetime consumption) as the sum of present discounted value
labor income is increased.
Wealth is therefore equal to the present discounted value
of future per capita GDP plus the present discounted value
of the idiosyncratic component of wages.
Further, solving this differential equation for the marginal revenue of human capital in terms of the present discounted value
of the expected future rental rate of human capital yields:
Similarly, the value of corporate equity depends on the present discounted value
of the expected dividend stream accruing to the owner of the equity.
UR1812 is the rate for 18-year-olds with 12 years of education); the PDV terms measure the present discounted value
, from the point of view of a worker of age 18, of earnings of workers with the stated level of education; and the WW terms equal weekly wages for workers of the stated age and education.
An individual will quit his/her job if tie expected present discounted value
of the current job is less than the expected present discounted value
of the next best alternative, net of moving costs.
It also provides a very useful chapter on basic concepts that recur throughot the textbook, such as present discounted value
, expected value, risk aversion, and the distinction between "real" and "nominal.
A debt overhang problem arises when the expected present discounted value
of potential future resource transfers from a debtor country is less than its current debt stock.
The median household would have saved $160 per month over the remaining life of the loan, and the total present discounted value
of the forgone savings was approximately $11,500.
The average state marginal tax cost of a layoff to employers (the present discounted value
of benefits paid back in future higher taxes) is 54 percent of the benefits paid to a firm's employees.