Advanced Search
MyIDEAS: Login

Firm Foundations and Human Capital Investments : the O-Ring Approach to Organizational Equilibrium in an Emerging Industry

Contents:

Author Info

  • Oliver Fabel

    ()
    (Department of Economics, University of Konstanz)

Abstract

The current analysis introduces human capital investments which - as all other investment projects - must be carried out given ex-ante uncertain returns. This return uncertainty reflects that particular ex-post ability realizations may or may not induce the possibility to engage in profitable entrepreneurial activity. Managed firms which recruit randomly while offering a certain wage-income cannot be kept from entering the industry. However, if it is individual beneficial to seek employment in such firms, given that human capital investments are sunk, the resulting industry structure provides less incentives to invest than a purely entrepreneurial industry. While it remains true that entrepreneurial firms - if they exist - are founded by teams of superior realized abilities, the equilibrium analysis reveals a rather different perspective of the incentive mechanism. Human capital investments are not so much necessary in order to induce entrepreneurial activity. Rather, entrepreneurial activity provides the effective incentives to invest in human capital. This distinction is important to note. Due to the risk-shifting property associated with employment in managed firms, policies directed at maximizing entrepreneurial activities will generally fail to implement an efficient solution. As with every other incentive mechanism, incentive compatibility constitutes a constraint on the possibility to achieve a first-best solution.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.ub.uni-konstanz.de/kops/volltexte/2003/1037/pdf/03-02.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim in its series Working Papers of the Research Group Heterogenous Labor with number 03-02.

as in new window
Length: 27 pages
Date of creation: 15 May 2002
Date of revision:
Handle: RePEc:knz:hetero:0302

Contact details of provider:
Postal: D-78457 Konstanz
Phone: +49 7531 88 2314
Fax: +49-7531-88-2145
Web page: http://www.uni-konstanz.de/forschergruppewiwi
More information through EDIRC

Related research

Keywords: Firm Foundations ; O-Ring Theorie ; Human Capital Investments ; Market Selection ; Risk-Shifting;

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:knz:hetero:0302. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gerald Eisenkopf).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.