Business Strategy, Human Capital, and Managerial Incentives

George Mailath, Volker Nocke and Andrew Postlewaite

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We posit that the value of a manager’s human capital depends on the firm’s business strategy. The resulting interaction between business strategy and managerial incentives affects the organization of business activities, both the internal organization of the firm and the determination of firm boundaries. We illustrate the impact of this interaction on firm boundaries in a dynamic agency model. There may be disadvantages in merging two firms even when such a merger allows the internalization of externalities between the two firms. Merging, by making unprofitable certain decisions, increases the cost of inducing managerial effort. This incentive cost is a natural consequence of the manager’s business-strategy -specific human capital.

Keywords: Human capital; managerial incentives; firm boundaries; firm organization (search for similar items in EconPapers)
JEL-codes: D23 L14 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2002-05-20, Revised 2003-06-23
New Economics Papers: this item is included in nep-bec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://economics.sas.upenn.edu/sites/default/file ... ng-papers/03-018.pdf (application/pdf)

Related works:
Journal Article: Business Strategy, Human Capital, and Managerial Incentives (2004)
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:pen:papers:03-018

Access Statistics for this paper

More papers in PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 133 South 36th Street, Philadelphia, PA 19104. Contact information at EDIRC.
Bibliographic data for series maintained by Administrator ().