Acquisition of general human capital for developing entrepreneurship

Abstract

We explore a model of the choice to provide firm-specific or general skills in an incomplete contract situation. Although general human capital is crucial for developing start-ups, firms and employers have strong incentives to provide their employees with firm-specific skills, as Becker (Human capital: a theoretical and empirical analysis, with special reference to education, Columbia University, New York, 1964) pointed out. In this study, we derive the conditions for which general training is provided. Specifically, if employers have no chance of becoming employees, then they always choose to provide firm-specific training. If employers face the possibility of becoming employees if the firm fails, however, they have an incentive to provide general human capital to increase their bargaining power by improving the outside option in which general training may be required outside the firm. Thus, the potential for mobility between the employer and employee roles is essential for providing general training.