Abstract
We use an endogenous growth model to contrast the socially optimal allocation of human capital with the decentralized solution, in a context where workers make the choices that determine social capital accumulation. As social capital is expected to increase productivity but is not traded in markets, a positive social capital externality is identified. We discuss the possibility that, in response to this externality, firms subsidize social capital accumulation activities, incurring into additional costs that are recouped through productivity gains. This reaction by firms may be seen as a justification for some corporate social responsibility actions targeted at workers, although a full internalization of the externality does not look achievable in practice.
Highlights
Worker productivity is crucial for economic growth
On the other hand, we investigate whether the social capital externality can act as an incentive for ...rms to increase their corporate social responsibility (CSR) activities in response to the market failure
Like Chou [10], we propose in our model that social capital contributes directly to the formation of human capital, but we take a wider perspective of the potential bene...ts generated by this asset: we assume that it a¤ects ...rms’productivity by having a multiplicative e¤ect on other inputs in the production function, which is coherent with Coleman [11]
Summary
Traditional economic models consider the role of physical capital and labour in production, whereas the importance of human capital accumulation, in a wider sense, has been the focus of endogenous growth theory. Given that the stock of knowledge and skills can be applied in different ways, we divide human capital into several components, namely: HY ;which represents the part of KH that is used in ...nal good production, HH ; which is dedicated to school attendance, and HS ; which re‡ects the skills that are relevant for social capital accumulation Considering that these distinct human capital activities aren’t done cumulatively, so that an allocative choice must be made, we have: KH = HY + HH + HS :. The t subscripts are dropped in the remaining sections for ease of notation
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