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Relational knowledge transfers

Garicano, Luis and Rayo, Luis (2017) Relational knowledge transfers. American Economic Review, 107 (9). pp. 2695-2730. ISSN 0002-8282

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Identification Number: 10.1257/aer.20160194


We study how relational contracts mitigate Becker's classic problem of providing general (non-firm-specific) human capital when training contracts are incomplete. The firms profit-maximizing agreement is a multi-period "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. We discuss policy interventions.

Item Type: Article
Official URL:
Additional Information: © 2017 American Economic Association
Divisions: Economics
Centre for Economic Performance
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
Date Deposited: 02 Jun 2017 14:45
Last Modified: 05 Jun 2024 20:45

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