A stepping stone arises in risky environments with learning and transferable capital. An example is the role played by academic 2-year colleges in postsecondary education: students, as they learn about the uncertain educational outcomes, can drop out or transfer up to harder and more rewarding schools, carrying a fraction of the accumulated human capital. A theory of education is built and contrasted empirically to find i) option value explains a large part of returns to enrollment, ii) enrollment in academic 2-year colleges is driven by the option to transfer up, and iii) the value of the stepping stone is small.

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