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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. 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.
  12. Lorne Carmichael, 1981. "Firm-Specific Human Capital and Promotion Ladders," Working Papers 452, Queen's University, Department of Economics.
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