Economic Integration And Human Capital Investment
AbstractIn this paper we seek to characterize 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 realization 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.
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 534.
Length: 40 pages
Date of creation: 1999
Date of revision:
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