Title: Incentives versus synergies in markets for talent
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.