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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: http://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
Contact details of provider: Postal: 150 St. George Street, Toronto, Ontario
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  13. 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.
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  16. 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.
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  18. 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.
  19. 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.
  20. 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.
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  26. Ransom, Michael R, 1993. "Seniority and Monopsony in the Academic Labor Market," American Economic Review, American Economic Association, vol. 83(1), pages 221-33, March.
  27. Bernhardt, Dan, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 315-39, April.
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  29. Carmichael, H Lorne, 1988. "Incentives in Academics: Why Is There Tenure?," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 453-72, June.
  30. 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.
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