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Equilibrium Contracts and Firm-sponsored Training


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Working Paper

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Authors

Rendahl, P. 

Abstract

This paper studies a model of firm-sponsored investments in general human capital. When institutional settings permit simple contractual arrangements that are consistent with at-will employment, firms invest in a worker's general skills. And when market forces discipline contracts, the equilibrium level of training intimately relates to any match-specific component of surplus, such as mobility costs. If these relation-specific components are sufficiently large, all externalities may be internalized, and training attains the social optimum. In marked contrast to the existing literature, these predictions do not rely on complementarities between training and rents (e.g. “wage-compression"), and they are independent of the distribution of profits and wages.

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Keywords

Contracts and Reputations.

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Publisher

Faculty of Economics

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