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Estimation of the Earnings Profile from Optimal Human Capital Accumulation
William J. Haley
Abstract
This paper considers an income maximizing life cycle model of human capital accumulation with the objective of simultaneous estimation of the parameters of the model from observations of the age-earnings profile. The earnings profile, which is a solution to the optimal control problem, is nonlinear and therefore was estimated by nonlinear least squares. The parameter estimates are all quite precise (in the standard error sense) and seem to be intuitively reasonable. The results given here suggest that optimal control models can be verified by direct estimation of the solution.
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