You cant use href tags within option tags. You will need javascript to do so.
<select name="formal" onchange="javascript:handleSelect(this)">
<option value="home">Home</option>
<option value="contact">Contact</option>
</select>
<script type="text/javascript">
function handleSelect(elm)
{
window.location = elm.value+".php";
}
</script>
The <select>
tag creates a dropdown list. You can't put html links inside a dropdown.
However, there are JavaScript libraries that provide similar functionality. Here is one example: http://www.dynamicdrive.com/dynamicindex1/dropmenuindex.htm