Analysis on Firm Incentive based on Ability and Efforts of Human Capital

This paper treats human capital ability as a variable, and firm production is jointly determined by ability and efforts. Based on relationship between ability and efforts, ability is function of efforts. This paper distinguishes ability-improving efforts from productive efforts; therefore human capital chooses optimal behavior combination of productive efforts and ability efforts. This paper builds models of incentive scheme based on ability and efforts, and discusses the determinant factors of optimal incentive intensity, agent's optimal combination of efforts, and optimal ability. The results drawn from the models may have some practical and theoretical significance for firm incentive scheme.