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Human Capital and Self-Enforcing Contracts

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  • Azariadis, Costas

Abstract

This essay analyzes labor contracts as a device for rearranging factor incomes over time under conditions of extreme adverse selection; in particular, the lack of verifiable public information about future compensation prevents finitely-lived workers from borrowing against their earnings. Specific human capital is used as an incentive to implement intertemporal self-enforcing contracts between workers and firms. After proposing a necessary and sufficient condition for the existence of such contracts, the resulting equilibrium earnings profiles are explored along with the effects of imperfections in the credit market on the way workers choose jobs and allocate time between current production and training. Copyright 1988 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Azariadis, Costas, 1988. " Human Capital and Self-Enforcing Contracts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(4), pages 507-528.
  • Handle: RePEc:bla:scandj:v:90:y:1988:i:4:p:507-28
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    Cited by:

    1. Lagakos, David & Moll, Benjamin & Porzio, Tommaso & Qian, Nancy, 2012. "Experience Matters: Human Capital and Development Accounting," CEPR Discussion Papers 9253, C.E.P.R. Discussion Papers.
    2. Luigi Guiso & Luigi Pistaferri & Fabiano Schivardi, 2013. "Credit within the Firm," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 211-247.
    3. Ngo Van Long & Antoine Soubeyran & Raphael Soubeyran, 2014. "Knowledge acquisition within an organization: How to retain a knowledge worker using wage profile and non-monotonic knowledge accumulation," CIRANO Working Papers 2014s-32, CIRANO.
    4. Atsuko Tanaka, "undated". "Who bears the cost of workers' health-related presenteeism and absenteeism," Working Papers 2016-31, Department of Economics, University of Calgary, revised 10 May 2016.

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