Labor contracts are a particularly interesting area for research in transaction cost economics. The reason is that many of the usual methods used to mitigate the appropriation of the rents from investments in specific assets are not available. In particular, slavery is frowned upon and employees are generally free to change employers. Contractual solutions can be employed to mitigate these problems, but such efforts suffer from the same limitations as contractual solutions in other markets.

Empirical approaches developed (in the main) by Heckman and McFadden give us an opportunity to examine the hiring of employees through a transaction cost lens. Levels of training, incentive pay, formal contracts, full time employment, etc., can all be viewed as dependent variables which will be influenced by specific human capital, complexity, bounded rationality, information asymmetry, etc. This session will examine the application of empirical models designed to deal with discrete choice to examine these issues, and will argue that there is a substantial need for novel research by careful empirical researchers.

Personnel economics is the application of microeconomic principles to human resources issues that are of concern to most businesses (Lazear, 2000). This field of economics has grown dramatically since its inception (circa 1980). This growth has been fueled by improvements in computer technology: both for firms and researchers. Firms can collect and manage more data than ever before, and researchers are better equipped to analyze this data. Many firms now have data archives spanning several years, complete with every salary increase, bonus payment, training program, promotion, dismissal, reprimand, exit interview, etc. Such data provides an excellent opportunity to understand the incentives within firms.

Our discussion will focus on the key differences between personnel economics and personnel/human resources. We will also argue that HR systems are an excellent place to look for institutions within firms, thus making them suitable for analysis using New Institutional Economics.