A quantitative model of the human capital contribution to the value of a project

Produced by: 
Universidad de los Andes
Available from: 
April 2014
Paper author(s): 
Rafael Bautista
Topic: 
Demographic Economics - Migration
Microeconomics - Competition - Productivity
Year: 
2015

This paper proposes a conceptual frame for assessing the economic contribution attributable to the human capital in a project in the product market. The starting point is the rejection of the assumption of human capital as commodity, which is implicit in nearly all discussions about the economic value of a project in the product market. Once the management team has already climbed a particular learning curve, this experience translates into a well-defined assembly of skills and know-how “honed in house” that are not marketable and that become the basis of sustained competitive advantage during the life of the project. In this model, the specificity of the in-house developed knowledge is encoded by the parameters of a function that represents the responses of the team to aspiration levels proposed by central management, vis-à-vis its perceptions of market conditions. How the net present value of the project depends on those parameters reflects the weight of the human capital. This approach reveals that the contribution of the human capital component to the value of a project does not follow any simple additive rule, and that the notion of added value comes mainly from comparing the team’s performance with that of competing management teams.

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Research section: 
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