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Self-Promoting Investments

  • Carolyn Pitchik
  • Aloysius Siow

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: https://www.economics.utoronto.ca/public/workingPapers/UT-ECIPA-PITCHIK-97-01.pdf
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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
Date of revision:
Handle: RePEc:tor:tecipa:pitchik-97-01
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  11. Bernt Bratsberg & James F. Ragan Jr. & John T. Warren, 2003. "Negative Returns to Seniority: New Evidence in Academic Markets," ILR Review, Cornell University, ILR School, vol. 56(2), pages 306-323, January.
  12. Lazear, Edward P, 1986. "Salaries and Piece Rates," The Journal of Business, University of Chicago Press, vol. 59(3), pages 405-31, July.
  13. Moore, William J & Newman, Robert J & Turnbull, Geoffrey K, 1998. "Do Academic Salaries Decline with Seniority?," Journal of Labor Economics, University of Chicago Press, vol. 16(2), pages 352-66, April.
  14. Daron Acemoglu & Jorn-Steffen Pischke, 1996. "Why Do Firms Train? Theory and Evidence," NBER Working Papers 5605, National Bureau of Economic Research, Inc.
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  16. Waldman, Michael, 1990. "Up-or-Out Contracts: A Signaling Perspective," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 230-50, April.
  17. Edward P. Lazear, 1984. "Raids and Offermatching," NBER Working Papers 1419, National Bureau of Economic Research, Inc.
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  19. Edlin, Aaron S & Reichelstein, Stefan, 1996. "Holdups, Standard Breach Remedies, and Optimal Investment," American Economic Review, American Economic Association, vol. 86(3), pages 478-501, June.
  20. Paul Milgrom & Sharon Oster, 1987. "Job Discrimination, Market Forces, and the Invisibility Hypothesis," The Quarterly Journal of Economics, Oxford University Press, vol. 102(3), pages 453-476.
  21. Siow, Aloysius, 1998. "Tenure and Other Unusual Personnel Practices in Academia," Journal of Law, Economics and Organization, Oxford University Press, vol. 14(1), pages 152-73, April.
  22. Chang, Chun & Wang, Yijiang, 1996. "Human Capital Investment under Asymmetric Information: The Pigovian Conjecture Revisited," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 505-19, July.
  23. Blass, Asher A, 1992. "Does the Baseball Labor Market Contradict the Human Capital Model of Investment?," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 261-68, May.
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  25. Joseph G. Altonji & Robert A. Shakotko, 1987. "Do Wages Rise with Job Seniority?," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 437-459.
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  27. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-76, February.
  28. Lorne Carmichael, 1983. "Firm-Specific Human Capital and Promotion Ladders," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 251-258, Spring.
  29. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  30. Smith Freeman, 1977. "Wage Trends as Performance Displays Productive Potential: A Model and Application to Academic Early Retirement," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 419-443, Autumn.
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