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Title: Relational Knowledge Transfers

Author(s): Luis Garicano and Luis Rayo

Publication Date: March 2016

Keyword(s): general human capital, international joint ventures and relational contracts

Programme Area(s): Industrial Organization and Labour Economics

Abstract: An expert with general knowledge trains a cash-constrained novice. Faster training increases the noviceís productivity and his ability to compensate the expert; it also shrinks the stock of knowledge yet to be transferred, reducing the expertís ability to retain the novice. The profit-maximizing agreement is a multi-period apprenticeship in which knowledge is transferred gradually over time. The expert adopts a " 1/e rule" whereby, at the beginning of the relationship, the novice is trained just enough to produce a fraction 1/e of the efficient output. This rule causes inefficiently lengthy relationships that grow longer the more patient the players. We discuss policy interventions.

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Bibliographic Reference

Garicano, L and Rayo, L. 2016. 'Relational Knowledge Transfers'. London, Centre for Economic Policy Research. http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11138