Human Capital and Self-Enforcing Contracts

Costas Azariadis ()

Scandinavian Journal of Economics, 1988, vol. 90, issue 4, pages 507-28

Abstract: This essay analyzes labor contracts as a device for rearranging factor incomes over time under conditions of extreme adverse selection; in particular, the lack of verifiable public information about future compensation prevents finitely-lived workers from borrowing against their earnings. Specific human capital is used as an incentive to implement intertemporal self-enforcing contracts between workers and firms. After proposing a necessary and sufficient condition for the existence of such contracts, the resulting equilibrium earnings profiles are explored along with the effects of imperfections in the credit market on the way workers choose jobs and allocate time between current production and training. Copyright 1988 by The editors of the Scandinavian Journal of Economics.

Date: 1988
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Scandinavian Journal of Economics is edited by Richard Friberg, Matti Liski and Kjetil Storesletten

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