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 ()

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)
Pages: 27 pages
Date: 2004-02
New Economics Papers: this item is included in nep-exp
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
ftp://papers.econ.mpg.de/esi/discussionpapers/2003-31.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Failed to connect to FTP server papers.econ.mpg.de: No such host is known.

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

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:esi:discus:2003-31

Ordering information: This working paper can be ordered from
http://www.econ.mpg. ... arch/ESI/discuss.php

Access Statistics for this paper

More papers in Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group Contact information at EDIRC.
Bibliographic data for series maintained by Karin Richter ( this e-mail address is bad, please contact ).