Simple Models of a Human-Capital-Based Firm: a Reference Point Approach

Paul Walker ()

Journal of the Knowledge Economy, 2016, vol. 7, issue 1, 219-247

Abstract: One important feature of the knowledge economy is the increased importance placed on human capital, especially when dealing with the firm. We apply the reference point approach to contracts to the modelling of a human-capital-based firm. First, a model of firm scope is offered which argues that the organisation of a human-capital-based firm depends on the “types” of human capital involved. Having a firm based on a homogeneous group of human capital leads to a different organisational form than that of a firm which involves a heterogeneous group of human capital. Second, a simple model of a human-capital-based firm is discussed. Three organisational forms are considered: an investor-owned firm, a labour-owned firm and a market transaction involving the use of an independent contractor. Results are given that show when each of these forms is optimal. The effects of a firm’s size and scope on organisation are considered as is the question of why are there conversions from worker to investor ownership. Copyright Springer Science+Business Media New York 2016

Keywords: Knowledge firm; Contracts; Theory of the firm; Reference points; Human capital; D23; D86; L22 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s13132-014-0212-9

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