Discussion Paper Details

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Title: Investment in Human Capital under Endogenous Asymmetric Information

Author(s): Heski Bar-Isaac and Clare Leaver

Publication Date: June 2021


Programme Area(s): Labour Economics and Organizational Economics

Abstract: When is general training under-provided? We study this classic question in a model of a competitive labour market. Workers vary in firm-specific and general skills. Firms' choices of information disclosure play a key role. Disclosing general human capital information on bad matches, but revealing nothing about good matches, leads to an efficient allocation of workers. This also creates adverse selection that enables workers to pay for efficient training. This information structure resembles the outplacement support commonly found in professional services firms. Moreover, it implies that wages of released workers can be higher than wages of those who are retained.

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Bibliographic Reference

Bar-Isaac, H and Leaver, C. 2021. 'Investment in Human Capital under Endogenous Asymmetric Information'. London, Centre for Economic Policy Research.