Lecture 7 - Many relationships can be taken as a...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Many relationships can be taken as a partnership in which two partners provide an input towards an outcome that they will share. For example, in a firm, the employer and the worker provide capital, know-how, and effort to produce a good that will generate a revenue, which will be divided between the employer and the worker according to the parties’ relative bargaining power, or an existing contract that reflects these bargaining powers. Many times, the generated value depends on the parties’ inputs in a way that is not additively separable. For example, the marginal increase in the revenue as we change the worker’s effort level depends on the level of capital and the machinery employed by the firm. Similarly, the value of an additional machine depends on the effort level of the worker. In most cases, there is a synergy between the parties, i.e., a party’s marginal input is more valuable when the other party provides higher input. This is also true in a grander level when the firms and the workers choose the technologies and the education levels. In an environment with few skilled workers who can operate computers, computerization of the production process will have low return as the firm will have to pay a lot for few skilled workers or employ low-skill workers who will not be able to utilize the computerized system skillfully. Similarly, the value of
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern