Technological progress, organizational change and the size of the Human Resources Department



and for the cost function to be convex this matrix must be positive definite, i.e. we
must have:

H1 > 0      H2 > 0

With reference to the first condition we have:

H1 > 0


2C
∂n
2


> 0 ξ (ξ - 1) nξ 2 (1 - Pt)θ Pη


>0ξ>1


i.e. it is satisfied if ξ>1, while with reference to the second condition we have:

that is:


H2 > 0 det H>0


2C
∂n2


2C

2


∂C^]>

∂ρt∂nt


ξ(ξ - 1) ntξ-2 (1 - ρt)θ ρtη


n (1 - Pt)θ-2 ρη-2 [η (η - 1)(1 - Pt) - Ptn (θ - 1) +
d
t


-Ptη(η+θ)(1- Pt) -Pt2 (η+θ)(θ - 1) -


that leads to:


ξnt2ξ-2 (1 - Pt)2θ-2 Pt2η-2


dt2


ξ-1

ξ (1 - Pt)θ-1 pη-1 [n - (n + θ) Pt]
d
t


[(ξ- 1)η(η- 1) (1 -Pt) -Ptη(ξ- 1) (θ - 1)+


>0


-Ptη (ξ - 1) (η+θ)(1- Pt) - Pt2 - 1) (η+θ)(θ - 1) +

-ξn2 + 2ξnPt (n + θ) + ξ (n2 + 2nθ + θ^ Pt2] > 0

The fraction outside the square bracket is positive, while considering the expression
inside the square bracket and letting
n tend to 0 (both in the case of n positive and
inthecaseof
n negative) we get:

-Pt2 - 1) θ (θ - 1) + ξθ2Pt2 > 0,

which holds when ξ>1 and θ<1, and hence the cost function is convex under the
conditions of the proposition. ■

At this point the profit function writes:

t = At £(1 - ρt) ht Ttd • L]1-a n? - nξ ^ (1 -dpt) ^ pη - wt ht Td Lt

where dt > 0 and where Ttd denotes now the working time demanded by the firm.
In the decentralized economy the firm’s optimization program is then given by:

max    At £(1 - ρt) htTtdLt] 1-α n? - П (1 -Pt) P - WthTdLt

nt ,Ttdt                                                               dt

12



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