Dynamic incentive mechanisms for human capital investment under imperfect information

In this paper, a model of employer-employee contractions that include the possibility of human capital investment and an endogenous labor market in a multi period environment has been built. The structure of the optimal decision and the effects of various parameters on the optimal decisions were derived. The results of this paper show that the optimal incentive contracts will have different requirements and a payoff, depending on the agent's initial skill level, and the labor market is the driving force in the agent 's human capital investment decision. The principal can change the agent 's human capital investment decision by changing the agent's first period on-the-job effort, which affects the marginal cost of human capital investment.