Human capital acquisition as a competitive response to the promotion distortion

Ori Zax

Metroeconomica, 2020, vol. 71, issue 3, 496-509

Abstract: Waldman shows that under the assumption that prospective employers observe whether a worker was promoted, but cannot observe his ability, the promotion policy is inefficient. In the current paper, we show that human capital acquisition made after the players (both worker and employer) observe the worker's ability reduces this inefficiency, even though such an investment is not optimal in some setups.

Date: 2020
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