Firm Specific Investments Based on Trust and Hiring Competition: A Theoretical and Experimental Study of Firm Loyalty

Siegfried K. Berninghaus, Luis G. Gonzalez () and Werner Güth ()

Discussion Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: Two firms, each consisting of a team with the owner and just one employee, compete on the labor market with free labor mobility. After observing the investment decisions by firm owners their employees can engage in costly training, thus increasing their general and firm-specific productivity, which also depends on capital endowment. The trust problem is mutual since firm owners, when investing, do not know employees' willingness to engage in training, while employees must hope that future wage offers will reward training. The experimental results show that higher firm-specificity of human capital makes employees more willing to engage in training, while low specificity triggers over-investment by firm owners. Firm loyalty is found to be usually low.

Keywords: hold-up problems; human capital; trust and reciprocity; team competition (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp
Date: 2004-02

Downloads: (external link)
ftp://papers.mpiew-jena.mpg.de/esi/discussionpapers/2003-31.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Discussion Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group
Contact information at EDIRC.
Series data maintained by Karin Richter ().