Ireland, Norman J. and Merzoni, Guido S., 1963- (1999) Economic integration and human capital investment. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers).

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Abstract

In this paper we seek to characterise a market for heterogeneous managers created by heterogeneous firms and the decisions on investment in both sector-specific and firm-specific human capital when those decisions are made prior to the realisation of firms' profitability and the degree of markets’ integration may vary. We consider the (Nash) equilibrium and relate this to a first-best allocation. The rent-seeking motives of managers and firms will generally make sector- and firm-specific investment decisions not socially optimum, both with respect to the number of investors and the level of each investment. The effect on welfare of markets’ integration varies with the nature of the skills considered. With more general, sector-specific, skills more integration, by increasing the matching ability of the market, reduces the distortion caused by rent-seeking, and increases social welfare. However, with more specific skills the increased matching ability of a more integrated market, by making managers more mobile, destroys some firm-specific human capital and so reduces welfare.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management H Social Sciences > HD Industries. Land use. Labor
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Executives, Human capital, Employees -- Recruiting, Investments
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	1 December 1999
Number:	No.534
Number of Pages:	40
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Consiglio nazionale delle ricerche (Italy) (CNR)
Grant number:	97.05251.ST74 (CNR)
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URI:	http://wrap.warwick.ac.uk/id/eprint/1641

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