Motivation Versus Human Capital Investment in an Agency Problem
49 Pages Posted: 16 Jan 2018
Date Written: January 10, 2018
This paper considers a firm's optimal investment in training and motivation measures in a hidden action agency problem. We study how these measures interact with each other and the contract in order to create value for the firm. Productivity enhancing training can be firm specific or non-firm specific and firm specific motivation can enhance utility or reduce effort cost. Whether these measures are complements or independents depends on the firm specificity of human capital and whether the participation constraint is binding. We characterize how a tighter labor market affects marginal profitabilities and examine the relative benefits of motivation measures which enhance utility versus those which decrease effort cost.
Keywords: Human Capital, Motivation, Agency
JEL Classification: L20, L21, L22, L23
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