Relational knowledge transfers

Luis Garicano, Luis Rayo

Research output: Contribution to journalArticle

4 Scopus citations

Abstract

We 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.

Original languageEnglish (US)
Pages (from-to)2695-2730
Number of pages36
JournalAmerican Economic Review
Volume107
Issue number9
DOIs
StatePublished - Sep 2017

ASJC Scopus subject areas

  • Economics and Econometrics

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