nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2016‒11‒20
seven papers chosen by
Patrick Kampkötter
Eberhard Karls Universität Tübingen

  1. A productive clash of cultures : injecting economics into leadership research By Zehnder, Christian; Herz, Holger; Bonardi, Jean-Philippe
  2. Optimal Long-Term Contracting with Learning By He, Zhiguo; Wei, Bin; Yu, Jianfeng; Gao, Feng
  3. Human capital and development accounting: New evidence from wage gains at migration By Hendricks, Lutz; Schoellman, Todd
  4. Worker Personality: Another Skill Bias beyond Education in the Digital Age By Eckhardt Bode; Stephan Brunow; Ingrid Ott; Alina Sorgner
  5. Under-Insurance in Human Capital Models with Limited Enforcement By Krebs, Tom; Kuhn, Moritz; Wright, Mark L.J.
  6. Firms Behaving Badly: How Law-Trained Executives Affect Investor Reaction to Corporate Social Irresponsibility By Vamsi K. Kanuri; Reza Houston; Michelle Andrews
  7. A Theory of Delegated Contracting By Gick, Wolfgang

  1. By: Zehnder, Christian; Herz, Holger; Bonardi, Jean-Philippe
    Abstract: Research on leadership in economics has developed in parallel to the literature in management and psychology and links between the fields have been sparse. Whereas modern leadership scholars mostly focus on transformational and related leadership styles, economists have mainly emphasized the role of contracts, control rights, and incentives. We argue that both fields could profit from enriching their approach with insights from the other field. We review and synthesize the economics literature on leadership in organizations and discuss how leadership scholars in management and psychology can benefit from the detailed understanding of transactional methods that economists have developed. We link the contributions in economics to a broad set of topics including the foundations of leadership, leader emergence, and leader effectiveness. At the same time, we also point out limitations of the economic approach and outline how the integration of leadership research and economics would broaden the scope of future studies.
    Keywords: Leadership; Economics; Foundations; Emergence; Effectiveness
    JEL: D3 D21 D23 M50
    Date: 2016–11–11
  2. By: He, Zhiguo (University of Chicago); Wei, Bin (Federal Reserve Bank of Atlanta); Yu, Jianfeng (University of Minnesota); Gao, Feng (Tsinghua University)
    Abstract: We introduce uncertainty into Holmstrom and Milgrom (1987) to study optimal long-term contracting with learning. In a dynamic relationship, the agent's shirking not only reduces current performance but also increases the agent's information rent due to the persistent belief manipulation effect. We characterize the optimal contract using the dynamic programming technique in which information rent is the unique state variable. In the optimal contract, the optimal effort is front-loaded and decreases stochastically over time. Furthermore, the optimal contract exhibits an option-like feature in that incentives increase after good performance. Implications about managerial incentives and asset management compensations are discussed.
    Keywords: executive compensation; moral hazard; Bayesian learning; hidden information; belief manipulation; private savings; continuous time; stock options
    JEL: D8 D86 M12
    Date: 2016–11–01
  3. By: Hendricks, Lutz; Schoellman, Todd
    Abstract: We reconsider the role for human capital in accounting for cross-country income differences. Our contribution is to bring to bear new data on the pre- and post- migration labor market experiences of immigrants to the U.S. Immigrants from poor countries experience wage gains that are only 40 percent of the GDP per worker gap, which implies that "country" accounts for 40 percent of income differences, while human capital accounts for 60 percent. Our approach handles selection by comparing the wage of the same individual in two different countries. We also provide evidence on and a correction for skill transfer.
    JEL: O11 J31
    Date: 2016
  4. By: Eckhardt Bode (Kiel Institute for the World Economy); Stephan Brunow (Institute for Employment Research, Nürnberg); Ingrid Ott (Karlsruhe Institute of Technology and Kiel Institute for the World Economy); Alina Sorgner (Friedrich-Schiller-University Jena)
    Abstract: We present empirical evidence suggesting that technological progress in the digital age will be biased not only with respect to skills acquired through education but also with respect to noncognitive skills (personality). We measure the direction of technological change by estimated future digitalization probabilities of occupations, and noncognitive skills by the Big Five personality traits from several German worker surveys. Even though we control extensively for education and experience, we find that workers characterized by strong openness and emotional stability tend to be less susceptible to digitalization. Traditional indicators of human capital thus measure workers' skill endowments only imperfectly.
    Keywords: Worker personality, Noncognitive skills, Digital transformation, Direction of technical change, Germany
    JEL: C25 J24 O33
    Date: 2016–11–15
  5. By: Krebs, Tom; Kuhn, Moritz; Wright, Mark L.J.
    Abstract: This paper uses a macroeconomic model calibrated to U.S. data to show that limited contract enforcement leads to substantial under-insurance against human capital risk. The model economy is populated by a large number of risk-averse households who can invest in risk-free physical capital and risky human capital. Expected human capital returns are age-dependent and calibrated to match the observed life-cycle profile of median labor income. Households have access to a complete set of credit and insurance contracts, but their ability to use the available financial instruments is limited by the possibility of default (limited contract enforcement). According to the baseline calibration, young households are severely under-insured against human capital (labor income) risk and the welfare losses due to the lack of insurance are substantial. These results are robust to realistic variations in parameter values.
    Keywords: Human Capital Risk; Insurance; Limited Enforcement
    JEL: D52 E21 E24 J24
    Date: 2016–11
  6. By: Vamsi K. Kanuri; Reza Houston; Michelle Andrews
    Abstract: Corporate social irresponsibility (CSI) regularly headlines the popular press, although the topic has drawn limited academic attention. We address this gap by investigating the association between the percent of law-educated board members and top management team executives in a firm and investor reaction to CSI. We hypothesize that legal degrees of executives will affect investor perceptions of firm foresight, and in turn their judgment of blame and consequent punishment. Based on abnormal returns to 662 announcements of CSI, we find that both too few and too many executives with law degrees lead investors to mete out harsher punishment. We further find that firm size, risk, and industry concentration amplify this inverted U-shaped link. Our findings contribute to research on CSI, attribution, and the executive education-firm performance link.
    Keywords: Corporate social irresponsibility, Investors, Law education, Attribution, Stock returns.
    Date: 2016–08
  7. By: Gick, Wolfgang (Research Institute of Industrial Economics (IFN))
    Abstract: Delegated contracting describes a widely observable agency mode where a top principal, who has no direct access to a productive downstream agent, hires an intermediary to forward a sub-contract with specified output targets and payments. The principal makes the payment to the intermediary contingent on production taking place; the intermediary is protected by limited liability and paid a bonus. I characterize the optimal grand-contract with a continuum of agent types by using optimal control techniques with a scrap value function. Delegation proofness is reached through paying the intermediary what she could obtain by deviating. This rent is shown to be convex and increasing in the contracting space. There is internal verification of the ex-post state to reach compliance. The principal uses cutoff structures instead of additional output distortions. A leftbound incentive alignment principle between principal and intermediary applies. The paper so delivers a general analysis of the loss of control in vertical hierarchies.
    Keywords: Delegated contracting; Vertical hierarchies; Internal verification; Adverse selection; Limited liability; Cutoff structures; Leftbound incentive alignment
    JEL: D23 D73 L51
    Date: 2016–10–26

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