Publication Date

January 2007


As the importance of human capital increases in organizations, so does the need to develop more sophisticated financial valuation models. This paper reviews some of the major traditional financial decision making models used in costing employment mode choices. It then introduces the real options valuation approach for costing such choices. The advantage of the real options model is demonstrated to build flexibility into employment decisions.


Suggested Citation
Badders, B., Clark, L. C., & Wright, P. M. (2007). Uncertainty and human capital decisions: Traditional valuation methods and real options logic (CAHRS Working Paper #07-01). Ithaca, NY: Cornell University, School of Industrial and Labor Relations, Center for Advanced Human Resource Studies.