Economic integration and human capital investment
Ireland, Norman J. and Merzoni, Guido S. (1999) Economic integration and human capital investment. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.534).
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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|
|Official Date:||1 December 1999|
|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|Status:||Not Peer Reviewed|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)|
Acemoglu, D. (1996) “Credit constraints, investment externalities and growth” in Booth, A. and D. Snower (eds.) “Acquiring Skills. Market failures, their symptoms and policy responses”, Cambridge, CEPR and Cambridge University Press.
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