TY - JOUR
T1 - Relational knowledge transfers
AU - Garicano, Luis
AU - Rayo, Luis
N1 - Funding Information:
* Garicano: IE Business School, Calle de María de Molina, 11-13-15, 28006 Madrid, Spain, LSE, and CEPR (email: L.Garicano@lse.ac.uk); Rayo: David Eccles School of Business, University of Utah, 1655 Campus Center Drive, Salt Lake City, UT 84112, and CEPR (email: Luis.Rayo@utah.edu). We thank Ricardo Alonso, Thomas Bruss, Drew Fudenberg, Bob Gibbons, Richard Holden, Hugo Hopenhayn, Yona Rubinstein, our discussants Jacques Crémer and Steve Tadelis, and three anonymous referees for valuable suggestions. We also thank participants at the 2013 NBER Working Group in Organizational Economics, the 2015 European Summer Symposium in Economic Theory, and the 2015 CEPR IMO Workshop, as well as seminar participants at Amsterdam, Banxico, BU, CEMFI, Chicago, Kellogg, LBS, LSE, Milan, MIT, and USC. Rayo is grateful to Alexandra Cieslik and gratefully acknowledges financial support from the John W. McIntyre family. Sina Moghadas Khorasani provided excellent research assistance. The authors declare that they have no relevant or material financial interests that relate to the research described in this paper.
PY - 2017/9
Y1 - 2017/9
N2 - 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.
AB - 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.
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U2 - 10.1257/aer.20160194
DO - 10.1257/aer.20160194
M3 - Article
AN - SCOPUS:85029304072
SN - 0002-8282
VL - 107
SP - 2695
EP - 2730
JO - American Economic Review
JF - American Economic Review
IS - 9
ER -
