DP11138 Relational Knowledge Transfers

• Luis Garicano Luis Rayo
5 Mar 2016

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 pro…t-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.