Relational Knowledge Transfers
American Economic Review · 2017 · Volume 107 · Issue 9
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.
Keywords
Asymmetric and Private Information, Mechanism Design, Economics of Contract: Theory, Human Capital, Skills, Occupational Choice, Labor Productivity, Personnel Economics: Training
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