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Caltech

Ulric B. and Evelyn L. Bray Seminar

Wednesday, January 9, 2013
4:00pm to 5:00pm
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Baxter B125
Exploration for Human Capital: Theory and Evidence from the MBA Labor Market
Camelia M. Kuhnen, Associate Professor of Finance, Kellogg School of Management, Northwestern University,

Theoretically and empirically, we find that firms consider potential employees using a real options approach, as they do when making other types of capital investment decisions. Firms value probationary employment arrangements that provide the option to learn about the productivity of workers before permanent investment occurs. Higher uncertainty and adjustment costs hinder permanent investment and increase the value of this option. Greater competition for workers speeds up investment, increasing the value of probationary employment. Higher worker redeployability leads to more investment if firms face sufficiently low competition. Novel data from the labor market from MBA graduates confirms these implications.

 

For more information, please contact Barbara Estrada by phone at Ext. 4083 or by email at [email protected].