Training and Effort Dynamics in Apprenticeship

43 Pages Posted: 4 Jul 2017

See all articles by Drew Fudenberg

Drew Fudenberg

Massachusetts Institute of Technology (MIT)

Luis Rayo

University of Utah

Multiple version iconThere are 2 versions of this paper

Date Written: July 2017

Abstract

We study the design of careers by a principal who trains a cash-constrained agent, or apprentice, who is free to walk away at any time. The principal specifies time paths of knowledge transfer, effort provision, and task allocation, subject to the apprentice's continued participation. In the optimal contract, the apprentice pays for training by working for low or no wages and working inefficiently hard. The apprentice can work on both "skilled" (knowledge-complementary) and "unskilled" (knowledge-independent) tasks. If the principal specifies inefficiently much skilled effort at any time, she shortens the apprenticeship compared to its length when skilled effort is efficient. Otherwise, she specifies inefficiently much unskilled effort throughout and leaves the apprenticeship length unchanged. We then consider the effect of regulations that limit how hard the apprentice can work and how long the apprenticeship can last.

Suggested Citation

Fudenberg, Drew and Rayo, Luis, Training and Effort Dynamics in Apprenticeship (July 2017). CEPR Discussion Paper No. DP12126. Available at SSRN: https://ssrn.com/abstract=2996671

Drew Fudenberg (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Luis Rayo

University of Utah ( email )

1645 E. Campus Center
Salt Lake City, UT 84112
United States

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