Essays on Value Creation and Appropriation in Human-Capital-Intensive Firms.

Human-capital-intensive firms contribute an increasing share of economic activity in developed countries. This dissertation builds on the idea that individuals have some unique attributes that influence value creation and value appropriation in human-capital-intensive firms. First, an individual is not a passive input and can exercise discretion. The extent of discretion for individuals leads to performance heterogeneity across firms and hence differences in value created by firms. Second, an individual can renegotiate her contract ex-post. An individual’s ability to renegotiate her contract affects the share of value appropriated by the firm vis-à-vis its employees. This dissertation deepens our theoretical understanding of these two unique attributes of human capital by exploring questions related to value creation and appropriation in human-capital-intensive firms. The dissertation comprises two studies. The first study focuses on value creation by theorizing about the micro-foundations of product creation. It asks the question: How do the micro-motives of employees explain their product creation behavior? The study argues that in firms that rely primarily on individuals’ capabilities to create value, we can view product creation as an outcome of the micro-motives of employees who compete for promotions and wage increases in the firm’s internal labor market. The study focuses on the explicit incentives and career concerns of employees to theorize about their product creation behavior. It tests the empirical implications using data from the U.S. mutual fund industry from 1992 to 2010. The second study theorizes about value appropriation by building on the micro-foundations of team production. It asks the question: How does the organization of production affect the division of surplus between the firm owner and labor? The study argues that reciprocal interdependence among employees can create complementarity in human-capital-intensive activity. Division of the returns from complementarity depends on whether interdependence among employees is symmetric or asymmetric. The study also suggests that complementarity is amenable to design and identifies management practices that generate complementarity. The study tests the hypotheses using data from the U.S. National Basketball Association from 1991 to 2007. The dissertation highlights how the incentives of employees and the organization of production have unique implications in human-capital-intensive activity.PHDBusiness AdministrationUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/95957/1/gargp_1.pd