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Governance of Knowledge-Intensive Firms in the Modern Market Economy

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  • Vicente Salas-Fumas

Abstract

We model contracting for joint production between workers and shareholders when investment in knowledge is non-verifiable and the resulting specific human capital embedded in the workers is non-tradable. The model explains how the effective cost of human capital services will vary depending on whether the investment in knowledge is financed by the workers or by the shareholders. We apply the results of the modeling to identify which firms are expected to gain and which to lose from posted trends in higher employability and lower empowerment of workers in modern market economies. Finally, we present conditions on the self-interest of current shareholders to empower workers as a way to stimulate their investment in firm-specific human capital.

Suggested Citation

  • Vicente Salas-Fumas, 2010. "Governance of Knowledge-Intensive Firms in the Modern Market Economy," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 17(3), pages 349-372.
  • Handle: RePEc:taf:ijecbs:v:17:y:2010:i:3:p:349-372
    DOI: 10.1080/13571516.2010.513811
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    References listed on IDEAS

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    1. Roberts, John & Van den Steen, Eric, 2000. "Shareholder Interests, Human Capital Investment and Corporate Governance," Research Papers 1631, Stanford University, Graduate School of Business.
    2. Gary S. Becker, 1975. "Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education, Second Edition," NBER Books, National Bureau of Economic Research, Inc, number beck75-1, March.
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