Milgrom and Roberts (1992): Chapter 10 Economics, Organization

1
Milgrom and Roberts (1992) Chapter 10 Economics,
Organization Management

• Chapter 10 Human Resource Management
• Human capital refers to the knowledge and
  acquired skills a person has that increase his or
  her ability to conduct activities with economic
  value.
• Firm-specific human capital includes skill and
  knowledge that are more valuable in the context
  of a particular firm.
• Knowledge of the firms accounting systems
• Knowledge of the firms customers needs and
• Knowledge of the firms standard operating
  procedures.

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Milgrom and Roberts (1992) Chapter 10 Economics,
Organization Management

• Employment as a Relationship
• The incompleteness, the implicit nature, and the
  shape of the employment contract are all
  responses to the impossibility of complete
  contracting.
• The usual contract is much more a relational
  contract It frames the relationship, specifying
  broad terms and objectives and putting in place
  some mechanisms for decision making when
  unforeseen events occur.
• Residual decision-making authority

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Milgrom and Roberts (1992) Chapter 10 Economics,
Organization Management

• Self-Enforcing Agreements
• In a self-enforcing agreement the relationship is
  structured so the the parties to the contractual
  relationship have incentive to abide by the
  contract for fear of the consequences of
  violating the agreement.
• The incentives in self-enforcing agreements
  require that each party receive a stream of rents
  from the relationship, so that each will be
  hesitant to do anything that endangers its
  continuance. In many cases, both the employer
  and the employee have an incentive to continue
  the relationship.

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Milgrom and Roberts (1992) Chapter 10 Economics,
Organization Management

• Human Resource Management Managing the
  organizations work force and maintaining the
  value of the relationship with the employees is a
  central task of management.
• Self-Selection Pay that is linked to
  performance will be most attractive to those who
  know (or believe) themselves to be unusually
  productive because they expect that this pay
  system will reward them exceptionally well.