Skip to main content

CEP discussion paper

Relational knowledge transfers

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.

Luis Garicano and Luis Rayo

8 March 2016     Paper Number CEPDP1412

Download PDF - Relational knowledge transfers

This CEP discussion paper is published under the centre's Growth programme.