Relational Knowledge Transfers
AbstractWe study how relational contracts mitigate Becker's classic problem of providing general human capital when training contracts are incomplete. The firm's profit-maximizing agreement is a multiperiod apprenticeship in which the novice is trained gradually over time and eventually receives all knowledge. The firm adopts a 1/e rule, whereby at the beginning of the relationship the novice is trained, for free, just enough to produce a fraction 1/e of the efficient output. After that, the novice earns all additional knowledge with labor. This rule causes inefficiently lengthy relationships that grow longer the more patient the players. A minimum wage is welfare enhancing.
CitationGaricano, Luis, and Luis Rayo. 2017. "Relational Knowledge Transfers." American Economic Review, 107 (9): 2695-2730. DOI: 10.1257/aer.20160194
- D82 Asymmetric and Private Information; Mechanism Design
- D86 Economics of Contract: Theory
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- M53 Personnel Economics: Training