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The sale of relational capital through tenure profiles and tournaments

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Abstract

In this paper, a specific form of human capital is analyzed, relational capital, which consists of matches between market parties. Search and information costs make these matches valuable to both parties. Its peculiarity is that the control over such matches is transferred within firms from those who initially control it to anyone who works with it for a period. This characteristic allows someone who approaches the end of his working life to sell his relational capital to junior partners. This sale can explain upward sloping tenure profiles and can result in tournaments if juniors are budget constrained and perfect contracting is not possible. The need to keep the amount of relational capital constant implies a generation balanced workforce within each firm.

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Paper provided by School of Economics, University of Queensland, Australia in its series Discussion Papers Series with number 443.

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Date of creation: 1998
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Handle: RePEc:qld:uq2004:443

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  1. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, American Economic Association, vol. 85(4), pages 872-90, September.
  2. Laffond G. & Laslier J. F. & Le Breton M., 1993. "The Bipartisan Set of a Tournament Game," Games and Economic Behavior, Elsevier, Elsevier, vol. 5(1), pages 182-201, January.
  3. Lea, Stephen E. G. & Webley, Paul, 1997. "Pride in economic psychology," Journal of Economic Psychology, Elsevier, Elsevier, vol. 18(2-3), pages 323-340, April.
  4. Bull, Clive & Ornati, Oscar & Tedeschi, Piero, 1987. "Search, Hiring Strategies, and Labor Market Intermediaries," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 5(4), pages S1-17, October.
  5. Main, Brian G M & O'Reilly, Charles A, III & Wade, James, 1993. "Top Executive Pay: Tournament or Teamwork?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 11(4), pages 606-28, October.
  6. Mortensen, D. T. & Vishwanath, T., 1995. "Personal contacts and earnings: It is who you know!," Labour Economics, Elsevier, Elsevier, vol. 2(1), pages 103-104, March.
  7. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 881-919, November.
  8. Ralph C. Kimball, 1997. "Innovations in performance measurement in banking," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue May, pages 23-38.
  9. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(2), pages 217-27, April.
  10. Canice Prendergast, 1996. "What Happens Within Firms? A Survey of Empirical Evidence on Compensation Policies," NBER Working Papers 5802, National Bureau of Economic Research, Inc.
  11. Besley, Timothy & Coate, Stephen & Loury, Glenn, 1994. "Rotating Savings and Credit Associations, Credit Markets and Efficiency," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(4), pages 701-19, October.
  12. Peter D. Sherer, 1995. "Leveraging human assets in law firms: Human capital structures and organizational capabilities," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 48(4), pages 671-691, July.
  13. Christopher Ferrall, 1996. "Promotions and Incentives in Partnerships: Evidence from Major U.S. Law Firms," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 29(4), pages 811-27, November.
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Cited by:
  1. Bezemer, Dirk & Dulleck, Uwe & Frijters, Paul, 2005. "Social Capital, Creative Destruction and Economic Development," Research Report, University of Groningen, Research Institute SOM (Systems, Organisations and Management) 05C09, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  2. Frijters, Paul, 2000. "Do individuals try to maximize general satisfaction?," Journal of Economic Psychology, Elsevier, Elsevier, vol. 21(3), pages 281-304, June.

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