
doi: 10.1257/aer.20160194
We study how relational contracts mitigate Becker's classic problem of providing general human capital when training contracts are incomplete. The firm's profit-maximizing agreement is a multiperiod apprenticeship in which the novice is trained gradually over time and eventually receives all knowledge. The firm adopts a 1/e rule, whereby at the beginning of the relationship the novice is trained, for free, just enough to produce a fraction 1/e of the efficient output. After that, the novice earns all additional knowledge with labor. This rule causes inefficiently lengthy relationships that grow longer the more patient the players. A minimum wage is welfare enhancing. (JEL D82, D86, J24, M53)
general human capital; knowledge; relational contracts; skills, jel: jel:J24, jel: jel:M10, jel: jel:C73, jel: jel:L14
general human capital; knowledge; relational contracts; skills, jel: jel:J24, jel: jel:M10, jel: jel:C73, jel: jel:L14
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