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Adverse Selection, Short-Term Contracting, and the Underprovision of On-the-Job Training
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Benjamin E. Hermalin
Veröffentlicht/Copyright:
25. Juli 2002
Abstract
This article argues that the existence of adverse selection (worker heterogeneity) can explain the underprovision of general training by employers. High-ability workers value the option to entertain outside wage offers once their abilty becomes known to the market. Offering short-term contracts is, therefore, a way to screen high-ability types from low-ability types. A firm is not willing to train workers under short-term contracts. Hence, despite the positive returns to training, training may be underprovided in equilibrium. More generally, this article contributes to the literature that seeks to explain the puzzling phenomenon of short-term contracts governing long-term buyer-seller relationships.
Keywords: contract length; provision of training
Published Online: 2002-07-25
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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- Second-Best Pollution Taxation and Environmental Quality
- Advances in Economic Analysis & Policy
- Home Bias in Portfolios and Taxation of Asset Income
- Explaining Incomplete Contracts as the Result of Contract-Reading Costs
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- Optimal Environmental Regulation in the Presence of Other Taxes: The Role of Non-separable Preferences and Technology
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- Credits, Crises, and Capital Controls: A Microeconomic Analysis
- The Effects of Social Security Privatization on Household Saving: Evidence from Chile
- Complexity, Bounded Rationality and Heuristic Search
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- Collusive Bidding in the FCC Spectrum Auctions
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