Publication Date

April 2004


An 'options' view of human capital acquisition explains value creation through timedeferred, sequential, path-dependent investment choices and addresses gaps in the resourcebased theory explanation of the relationship between human resources and competitive advantage. Firms will invest in options for human capital, using alternative employment arrangements like temporary/contractual/part-time workers and internships, or by outsourcing the work, when uncertainty associated with human capital is high and investments in human capital are largely irreversible. We discuss various options for skills and employees, two interrelated components of human capital. These are flexibility options, options to wait or defer, options to abandon, learning options, and switching options. The opportunity cost of not having options is quantifiable, which makes the real options approach valuable for strategic HRM decisions.


Suggested Citation
Bhattacharya, M. & Wright, P. M. (2004). Options for human capital acquisition (CAHRS Working Paper #04-07). Ithaca, NY: Cornell University, School of Industrial and Labor Relations, Center for Advanced Human Resource Studies.