Centre for Vocational Education Research LSE RSS Email Facebook Twitter


CEP discussion paper
Relational knowledge transfers
Luis Garicano and Luis Rayo
March 2016
Paper No' CEPDP1412:
Full Paper (pdf)

JEL Classification: IO; LE

Tags: general human capital; international joint ventures; relational contracts

An expert with general knowledge trains a cash-constrained novice. Faster training increases the novice’s productivity and his ability to compensate the expert; it also shrinks the stock of knowledge yet to be transferred, reducing the expert’s ability to retain the novice. The profit-maximizing agreement is a multi-period apprenticeship in which knowledge is transferred gradually over time. The expert adopts a " 1/e rule" whereby, at the beginning of the relationship, the novice is trained just enough to produce a fraction 1/e of the efficient output. This rule causes inefficiently lengthy relationships that grow longer the more patient the players. We discuss policy interventions.

'Relational Knowledge Transfers', Luis Garicano and Luis Rayo, American Economic Review, 107(9), September 2017