Sales Maximization and Specific Human Capital
Rand Journal of Economics, Vol. 29, No. 4, Winter 1998
Posted: 10 Dec 1998
Profit-maximizing owners of firms may find it optimal to provide managers with incentives to maximize sales in addition to profits. This influences the outcome of the bargaining game between workers and managers over workers' wages and helps to solve the problem of underinvestment by workers in specific human capital. I investigate optimal managerial contracts from this point of view and show that the optimal contract is a function of sales in addition to profits.
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