The sale of relational capital through tenure profiles and tournaments

In this paper, a specific form of human capital is analyzed, relational cap ital, which consists of matches between market parties. Search and informat ion costs make these matches valuable to both parties. Its peculiarity is t hat the control over such matches is transferred within firms from those wh o initially control it to anyone who works with it for a period. This characteristic allows someone who approaches the end of his working li fe to sell his relational capital to junior partners. This sale can explain upward sloping tenure profiles and can result in tournaments if juniors ar e budget-constrained and perfect contracting is not possible. The need to k eep the amount of relational capital constant implies a generational balanc ed workforce within each firm. (C) 2000 Elsevier Science B.V. All rights re served.