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Self-Promoting Investments

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  • Carolyn Pitchik
  • Aloysius Siow

Abstract

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.

Suggested Citation

  • Carolyn Pitchik & Aloysius Siow, 1997. "Self-Promoting Investments," Working Papers pitchik-97-01, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:pitchik-97-01
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    References listed on IDEAS

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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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