Self Directed Learning with Hidden Action: A Quadratic Model with an Implication for the Skills Gap

Abstract

This paper considers a hidden action agency model in which an agent can be incentivized to simultaneously work and self train to increase productivity. We determine conditions under which the principal wants to incentivize concurrent working and training and conditions under which the agent would want to participate. Next we consider outside hiring as an alternative to internal working and training. We discuss the conditions under which the agent and the principal would be better off with internal and concurrent work and training as opposed to a pre-work training program, and we provide a reason for the skills gap. The results are also applicable to multitasking between work effort and capital maintenance effort.

Keywords: Human Capital, Investment, Agency

JEL Classification: L20, L21, L22, L23