nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2012‒05‒15
thirteen papers chosen by
Tommaso Reggiani
Universita' di Bologna

  1. Human Capital and Regional Development By Nicola Gennaioli; Rafael Laporta; Florencio López-de-Silanes; Andrei Schleifer
  2. Matching Firms, Managers, and Incentives By Oriana Bandiera; Luigi Guiso; Andrea Prat; Raffaella Sadun
  3. Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent By Viral Acharya; Marco Pagano; Paolo Volpin
  4. A Comparative Perspective on Italy's Human Capital Accumulation By Giuseppe Bertola; Paolo Sestito
  5. Guest-Worker Migration, Human Capital and Fertility By Leonid V. Azarnert?
  6. Parental Ethnic Identity and Educational Attainment of Second-Generation Immigrants By Simone Schüller
  7. Optimal Coexistence of Long-Term and Short-Term Contracts in Labor Markets By Inés Macho-Stadler; David Pérez-Castrillo; Nicolés Porteiro
  8. On the Relative Efficiency of Performance Pay and Social Incentives By Uri Gneezy; Pedro Rey-Biel
  9. What Do CEOs Do? By Oriana Bandiera; Luigi Guiso; Andrea Prat; Raffaella Sadun
  10. The Dynamic Effects of Educational Accountability By Hugh Macartney
  11. Gender Gaps in Performance: Evidence from Young Lawyers By Ghazala Azmat; Rosa Ferrer
  12. Talent management in triadic organizational architectures By Marco LiCalzi; Lucia Milone
  13. Growth, Selection and Appropriate Contracts By Alessandra Bonfiglioli and Gino Gancia

  1. By: Nicola Gennaioli; Rafael Laporta; Florencio López-de-Silanes; Andrei Schleifer
    Abstract: We investigate the determinants of regional development using a newly constructed database of 1569 sub-national regions from 110 countries covering 74 percent of the worlds surface and 96 percent of its GDP. We combine the cross-regional analysis of geographic, institutional, cultural, and human capital determinants of regional development with an examination of productivity in several thousand establishments located in these regions. To organize the discussion, we present a new model of regional development that introduces into a standard migration framework elements of both the Lucas (1978) model of the allocation of talent between entrepreneurship and work, and the Lucas (1988) model of human capital externalities. The evidence points to the paramount importance of human capital in accounting for regional differences in development, but also suggests from model estimation and calibration that entrepreneurial inputs and human capital externalities are essential for understanding the data.
    Keywords: productivity, entrepreneurial education, regional externalities
    JEL: I25 O11 O15
    Date: 2011–09
  2. By: Oriana Bandiera; Luigi Guiso; Andrea Prat; Raffaella Sadun
    Abstract: We exploit a unique combination of administrative sources and survey data to study the match between firms and managers. The data includes manager characteristics, such as risk aversion and talent; firm characteristics, such as ownership; detailed measures of managerial practices relative to incentives, dismissals and promotions; and measurable outcomes, for the firm and for the manager. A parsimonious model of matching and incentive provision generates an array of implications that can be tested with our data. Our contribution is twofold. We disentangle the role of risk-aversion and talent in determining how firms select and motivate managers. In particular, risk-averse managers are matched with firms that offer low-powered contracts. We also show that empirical findings linking governance, incentives, and performance that are typically observed in isolation, can instead be interpreted within a simple unified matching framework.
    Keywords: personnel economics, hiring policy, management, performance related pay, performance incentives
    JEL: J24 L2
    Date: 2012–05
  3. By: Viral Acharya (New York University, NBER, CEPR and ECGI); Marco Pagano (Università di Napoli Federico II, CSEF, EIEF, CEPR and ECGI); Paolo Volpin (London Business School and CEPR)
    Abstract: We present a model where managers are risk-averse, and firms compete for scarce managerial talent (“alpha”). When managers are not mobile across firms, firms provide efficient compensation, which allows for learning about managerial talent and insures low-quality managers. When instead managers can move across firms, firms cannot provide co-insurance among their employees. In anticipation, risk-averse managers may churn across firms before their true quality is learnt. The result is excessive risk-taking with pay for short-term performance and build up of long-term risks. We conclude with the analysis of policies to address the resulting inefficiency in firms’ compensation.
    Keywords: short-termism, executive compensation, tail risk, managerial turnover.
    JEL: D62 G32 G38 J33
    Date: 2012–04–26
  4. By: Giuseppe Bertola (Edhec Business School and CEPR); Paolo Sestito (Bank of Italy)
    Abstract: This paper reviews the evolution of educational institutions and outcomes over the 150 years since Italy's unification, and discusses their interaction with national and regional growth patterns. While initial educational conditions contributed to differentiate across regions the early industrial take off in the late 19th century, and formal education does not appear to have played a major role in the postwar economic boom, the slowdown of Italy's economy since the 1990s may be partly due to interactions between its traditionally low human capital intensity and new comparative advantage patterns, and to the deterioration since the 1970s of the educational system's organization.
    Keywords: Education systems, tracking, economic growth, regional convergence
    JEL: N30
    Date: 2011–10
  5. By: Leonid V. Azarnert?
    Abstract: This work focuses on a temporary guest-worker-type migration of individuals from the middle class of the wealth distribution. The article demonstrates that the possibility of a low-skilled guest-worker employment in a higher wage foreign country lowers the relative attractiveness of the skilled employment in the home country. Thus it prevents a fraction of individuals from acquiring human capital. Therefore, even if all individuals who acquired education remain in the home country, the actual number of educated workers in the source economy decreases, and the aggregate level of human capital in this economy would thus be negatively affected.
    Keywords: Migration, Human Capital, Fertility, Brain Drain, Economic Growth
    JEL: F22 F43 J13 J24 J61 O15
    Date: 2011–09
  6. By: Simone Schüller
    Abstract: A lack of cultural integration is often blamed for hindering immigrant families' economic progression. This paper is a first attempt to explore whether immigrant parents' ethnic identity affects the next generation's human capital accumulation in the host country. Empirical results based on data from the German Socio-Economic Panel (SOEP) indicate that maternal majority as well as paternal minority identity are positively related to the educational attainment of second-generation youth - even controlling for differences in ethnicity, family background and years-since-migration. Additional tests show that the effect of maternal majority identity can be explained by mothers' German language proficiency, while the beneficial effect of fathers' minority identity is not related to language skills and thus likely to stem from paternal minority identity per se.
    Keywords: Ethnic Identity, Second-Generation Immigrants, Education
    JEL: I21 J15 J16
    Date: 2012
  7. By: Inés Macho-Stadler; David Pérez-Castrillo; Nicolés Porteiro
    Abstract: We consider a market where firms hire workers to run their projects and such projects differ in profitability. At any period, each firm needs two workers to successfully run its project: a junior agent, with no specific skills, and a senior worker, whose effort is not verifiable. Senior workers differ in ability and their competence is revealed after they have worked as juniors in the market. We study the length of the contractual relationships between firms and workers in an environment where the matching between firms and workers is the result of market interaction. We show that, despite in a one-firm-one-worker set-up long-term contracts are the optimal choice for firms, market forces often induce firms to use short-term contracts. Unless the market only consists of firms with very profitable projects, firms operating highly profitable projects offer short-term contracts to ensure the service of high-ability workers and those with less lucrative projects also use short-term contracts to save on the junior workers wage. Intermediate firms may (or may not) hire workers through long-term contracts.
    Keywords: Moral Hazard, long-term contracts, equilibrium contracts
    JEL: D86 C78
    Date: 2011–05
  8. By: Uri Gneezy; Pedro Rey-Biel
    Abstract: In contrast to the simplifying assumption of selfishness, social incentives have been shown to play a role in economic interactions. Before incorporating social incentives into models and policies, however, one needs to know their efficiency relative to standard pay-for-performance incentives. We report evidence from a large field experiment comparing the effectiveness of contingent and non-contingent (social) incentives in eliciting costly effort. The company with which we worked sent 7,250 letters asking customers to complete a survey. Some letters contained cash amounts ranging from $1 to $30, whereas others promised to pay upon compliance. We compare the response rates and cost effectiveness of these contingent and social incentives with each other and with a no-incentives control. In line with previous findings, we find that social incentives generated some effort: small amounts increased the response rate with respect to the control, but the size of the reward had a relatively minor effect. In contrast, the response rate for contingent incentives was low for small amounts but increased rapidly as incentives increased. Importantly, for (almost) any given response rate social incentives were more costly than contingent incentives.
    Keywords: contingent incentives; gift exchange
    JEL: C72 C91 D81
    Date: 2011–10
  9. By: Oriana Bandiera; Luigi Guiso; Andrea Prat; Raffaella Sadun
    Abstract: We develop a methodology to collect and analyze data on CEOs' time use. The idea - sketched out in a simple theoretical set-up - is that CEO time is a scarce resource and its allocation can help us identify the firm's priorities as well as the presence of governance issues. We follow 94 CEOs of top-600 Italian firms over a pre-specified week and record the time devoted each day to different work activities. We focus on the distinction between time spent with insiders (employees of the firm) and outsiders (people not employed by the firm). Individual CEOs differ systematically in how much time they spend at work and in how much time they devote to insiders vs. outsiders. We analyze the correlation between time use, managerial effort, quality of governance and firm performance, and interpret the empirical findings within two versions of our model, one with effective and one with imperfect corporate governance. The patterns we observe are consistent with the hypothesis that time spent with outsiders is on average less beneficial to the firm and more beneficial to the CEO and that the CEO spends more time with outsiders when governance is poor.
    Keywords: CEOs, corporate governance, time use
    JEL: D2 G3 G34
    Date: 2012–05
  10. By: Hugh Macartney
    Abstract: Recent education accountability reforms feature school-level performance targets that condition on prior scores to account for student heterogeneity. Yet doing so introduces potential dynamic distortions to incentives: teachers may be less responsive to the reform today to avoid more onerous future targets--an instance of the so-called `ratchet effect.' Guided by a dynamic model and utilizing rich educational panel data from North Carolina, I exploit school grade span variation to identify any dynamic gaming, finding compelling evidence of ratchet effects. I then directly estimate the structural parameters of the corresponding model, uncovering complementarities between teacher effort and student ability.
    Keywords: Public, Education, Personnel, Dynamic Gaming, Dynamic Incentives, Ratchet Effects, Education Production, Educational Accountability
    JEL: D82 I21 J24 J33 M52
    Date: 2012
  11. By: Ghazala Azmat; Rosa Ferrer
    Abstract: This paper documents and studies the gender gap in performance among associate lawyers in the United States. Unlike most high-skilled professions, the legal profession uses widely-accepted and objective methods to measure and reward lawyers productivity: the number of hours billed to clients and the amount of new client revenue generated. We find clear evidence of a gender gap in annual performance. Male lawyers bill ten-percent more hours and bring in more than double the new client revenue. We show that the differential impact across genders in the presence of young children and the differences in aspirations to become a law-firm partner account for a large part of the difference in performance. These gaps in performance have important consequences for gender gaps in earnings. While individual and firm characteristics explain up to 50 percent of the gap in earnings, the inclusion of performance measures explains most of the remainder.
    Keywords: performance measures, gender gaps, lawyers
    JEL: M52 J16 K40 J44
    Date: 2012–03
  12. By: Marco LiCalzi (Department of Management, Università Ca' Foscari Venezia); Lucia Milone (Department of Economics and Business, LUISS Roma)
    Abstract: We study a model of team problem-solving over a large solution space. Compared to the existing literature, we allow for heterogeneity both in the organizational architectures and in the agents' cognitive abilities; moreover, we introduce a more expressive performance measure. We find a robust ranking of the triadic architectures with respect to their effectiveness and provide a key recommendation for talent management in partial hierarchies.
    Keywords: Collective problem-solving; theory of teams; search
    JEL: O31 O32 D83 D85
    Date: 2012–04
  13. By: Alessandra Bonfiglioli and Gino Gancia
    Abstract: We study a dynamic model where growth requires both long-term investment and the selection of talented managers. When ability is not ex-ante observable and contracts are incomplete, managerial selection imposes a cost, as managers facing the risk of being replaced tend to choose a sub-optimally low level of long-term investment. This generates a trade-off between selection and investment that has implications for the choice of contractual relationships. Our analysis shows that rigid long-term contracts sacrificing managerial selection may be optimal at early stages of economic development and when access to information is limited. As the economy grows, however, knowledge accumulation increases the return to talent and makes it optimal to adopt flexible contractual relationships, where managerial selection is implemented even at the cost of lower investment. Better institutions, in the form of a richer contracting environment and less severe informational frictions, speed up the transition to short-term relationships.
    Keywords: information, selection, appropriate contracts, development, growth, appropriate institutions
    JEL: D8 O40
    Date: 2011–06

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