Incentives versus synergies in markets for talent
By: Bharat N. Anand, Alexander Galetovic, Alvaro Stein
Contributors: Galetovic P., Alexander; Stein, A. (Alvaro), 1959-; Harvard Business School. Division of Research
Series: Working paper / Division of Research, Harvard Business School -- 04-037; Working paper (Harvard Business School. Division of Research) -- 04-037
Publisher: Division of Research, Harvard Business School
Published: 2003
Place of publication: Boston
Language: eng
Number of pages: 43
Description: Consider a cash-constrained and talented individual who must invest in acquiring a skill essential to execute a project. Skill acquisition may be financed by: (a) a corporation, which inserts the project into its pre-existing organization; or (b) a specialist that finances a stand-alone project. The specialist can commit to make talent the residual claimant, thus giving first-best effort incentives. The corporation, on the other hand, can exploit cross-project synergies, but only by centralizing operations, which weakens incentives. Property rights may be weak: talent may leave and develop the project elsewhere after acquiring the skill. In this setup, we systematically study who will finance talent. We show that weak property rights help corporations: for a given level of centralization, both effort and profits increase as property rights weaken. Moreover, we show that whenever the corporation beats the specialist and finances, it is socially efficient.
Notes: "November 21, 2003"--Added t.p.

Includes bibliographical references.