American Economic Review Vol. 107 No. 9 2017

Relational Knowledge Transfers

Luis Garicano¹; Luis Rayo²

¹ IE Business School, Calle de María de Molina, 11-13-15, 28006 Madrid, Spain, LSE, and CEPR (email: ) · ² David Eccles School of Business, University of Utah, 1655 Campus Center Drive, Salt Lake City, UT 84112, and CEPR (email: )

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.

DOI

10.1257/aer.20160194

Volume

107

Issue

9

Pages

2695-2730

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓