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Self-Promoting Investments

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Author Info
Carolyn Pitchik
Aloysius Siow

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Abstract

What is the impact on human capital investment when a worker's ability and investments are observed by the labour market only when the worker invests in self-promoting activities? When firms pay spot market wages, high ability workers overinvest in self- promotion. There is no employment contract that attains full efficiency. Constrained efficiency is attained when employment bonds are feasible. \ The contract that both attains constrained efficiency and minimizes the bond posted offers (i) severance payments, (ii) strategically matching outside offers and (iii) a minimum wage.

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File URL: http://repec.economics.utoronto.ca/files/UT-ECIPA-PITCHIK-97-01.pdf
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Publisher Info
Paper provided by University of Toronto, Department of Economics in its series Working Papers with number pitchik-97-01.

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Length: 27 pages
Date of creation: 29 May 1997
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Handle: RePEc:tor:tecipa:pitchik-97-01

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Find related papers by JEL classification:
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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  28. Altonji, Joseph G & Shakotko, Robert A, 1987. "Do Wages Rise with Job Seniority?," Review of Economic Studies, Blackwell Publishing, vol. 54(3), pages 437-59, July. [Downloadable!] (restricted)
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  29. Lazear, Edward P, 1986. "Salaries and Piece Rates," Journal of Business, University of Chicago Press, vol. 59(3), pages 405-31, July. [Downloadable!] (restricted)
  30. Milgrom, Paul R, 1988. "Employment Contracts, Influence Activities, and Efficient Organization Design," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 42-60, February. [Downloadable!] (restricted)
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  31. Bernhardt, Dan, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Blackwell Publishing, vol. 62(2), pages 315-39, April. [Downloadable!] (restricted)
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