How and When Should Companies Retain Their Human Capital? Contracts, Incentives and Human Resource Implications

Posted: 1 Feb 2010

See all articles by Alfonso Gambardella

Alfonso Gambardella

Bocconi University - Department of Management and Technology

Marco S. Giarratana

Department of Management & Technology

Claudio Panico

Bocconi University - Department of Management and Technology

Multiple version iconThere are 2 versions of this paper

Date Written: February 2010

Abstract

The increasing competition in the labor market for human capital pushes firms to create better incentives to manage talented individuals. In this article, we model the optimal employment contract when two features of human capital are present: (i) private information of the employee about his skills; and (ii) the inability to contract on the output of the employment activity. Our model shows how firms can use delegation (i.e., the employee's job autonomy) to provide the incentives to a privately informed employee. The model novelty resides in turning a classic source of potential inefficiency like asymmetric information into a factor that firms can use to design incentives. Our model provides a new explanation of why, in technologically dynamic environments, one observes more intense formations of start-ups and a greater inter-firm mobility of human capital. Our setting also suggests how established companies can use their complementary assets to provide better incentives to their skilled employees.

Suggested Citation

Gambardella, Alfonso and Giarratana, Marco S. and Panico, Claudio, How and When Should Companies Retain Their Human Capital? Contracts, Incentives and Human Resource Implications (February 2010). Industrial and Corporate Change, Vol. 19, Issue 1, pp. 1-24, 2010, Available at SSRN: https://ssrn.com/abstract=1544153 or http://dx.doi.org/dtp039

Alfonso Gambardella (Contact Author)

Bocconi University - Department of Management and Technology ( email )

Via Roentgen 1
Milan, MI 20136
Italy

Marco S. Giarratana

Department of Management & Technology ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

HOME PAGE: http://www.mgiarra.eu

Claudio Panico

Bocconi University - Department of Management and Technology ( email )

Via Roentgen 1
Milan, MI 20136
Italy

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