Working Paper: CEPR ID: DP11138
Authors: Luis Garicano; Luis Rayo
Abstract: An expert with general knowledge trains a cash-constrained novice. Faster training increases the novices productivity and his ability to compensate the expert; it also shrinks the stock of knowledge yet to be transferred, reducing the experts ability to retain the novice. The pro t-maximizing agreement is a multi-period apprenticeship in which knowledge is transferred gradually over time. The expert adopts a ¹/ₑ rulewhereby, at the beginning of the relationship, the novice is trained just enough to produce a fraction ¹/ₑ of the efficient output. This rule causes inefficiently lengthy relationships that grow longer the more patient the players. We discuss policy interventions.
Keywords: General; Human Capital; International Joint Ventures; Relational Contracts
JEL Codes: D86; J24; L24; M53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| faster training (T) (M53) | increased productivity (P) (E23) |
| increased productivity (P) (E23) | compensation (C) (M52) |
| initial knowledge gift (G) (D83) | increased productivity (P) (E23) |
| faster training (T) (M53) | stock of knowledge yet to be transferred (K) (D83) |
| stock of knowledge yet to be transferred (K) (D83) | ability to retain N (E) (Q30) |
| patience (Pat) (Y60) | duration of the apprenticeship (D) (J24) |
| duration of the apprenticeship (D) (J24) | wasted output (O) (C67) |
| faster training (T) (M53) | compensation (C) (M52) |
| initial knowledge gift (G) (D83) | compensation (C) (M52) |