Task-Specific Human Capital and Organizational Inertia

Tinbergen Institute Discussion Paper 14-034/VII

43 Pages Posted: 15 Mar 2014

See all articles by Josse Delfgaauw

Josse Delfgaauw

Erasmus University Rotterdam (EUR) - Department of Economics; Tinbergen Institute

Otto H. Swank

Erasmus University Rotterdam - Department of Economics; Tinbergen Institute Rotterdam (TIR)

Multiple version iconThere are 2 versions of this paper

Date Written: March 12, 2014

Abstract

Employees' incentive to invest in their task proficiency depends on the likelihood that they will execute the same tasks in the future. Changes in tasks can be warranted as a result of technological progress and changes in firm strategy as well as from fine-tuning job design and from monitoring individuals' performance. However, the possibility of a change in tasks reduces employees' incentive to invest in task-specific skills. We develop a simple two-period principal-agent model showing that some degree of inertia benefits the principal. We then analyze how organizations can optimally combine several policies to approach the optimal degree of inertia. In particular, we consider the optimal mixture of (abstaining from) exploration, managerial vision, organizational task-specific investments, and incentive pay. Our analysis yields testable predictions concerning the relations between these organizational policies.

Keywords: task-specific human capital, organizational inertia, time-inconsistency, exploration, exploitation

JEL Classification: D23, D83, D92

Suggested Citation

Delfgaauw, Josse and Swank, Otto H., Task-Specific Human Capital and Organizational Inertia (March 12, 2014). Tinbergen Institute Discussion Paper 14-034/VII, Available at SSRN: https://ssrn.com/abstract=2408540 or http://dx.doi.org/10.2139/ssrn.2408540

Josse Delfgaauw (Contact Author)

Erasmus University Rotterdam (EUR) - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Otto H. Swank

Erasmus University Rotterdam - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute Rotterdam (TIR)

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 4081448 (Phone)
+31 10 2120551 (Fax)

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