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Abstract:

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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.