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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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  12. Acemoglu, D. & Pischki, J.S., 1996. "Why Do Firms Train? Theory and Evidence," Working papers 96-7, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. 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.
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  30. 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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