Impact of the Internet on consumer human capital

Date of Award


Degree Type


Degree Name

Doctor of Philosophy (PhD)


Business Administration


Sevilimedu P. Raj


Internet, Consumer, Human capital

Subject Categories

Business Administration, Management, and Operations | E-Commerce | Marketing


Consumption-related investments in knowledge and skills are important components of consumer decision making. Consumption knowledge and the skills needed to use this knowledge are conceptualized as consumption human capital. Advances such as the Internet have enabled consumers to share, communicate and trade their human capital. We hypothesize that the Internet can change the institutions that consumers adopt to optimize their human capital investments. In this respect, "tacitness" as well as the "incontractibility" dimensions of knowledge are hypothesized as key determinants shaping optimal institutional arrangements or structures.

We first demonstrate how human capital investment by consumers in an Internet-mediated environment imparts significant differences in returns based on how low or high this investment is. The 10th WWW survey data from Georgia Tech Research Corporation are used for this study. Investment in consumption human capital by a group of consumers called experts is beneficial not only for them but also for novice consumers and marketers. This is made possible by the mediation of the Internet as an institutional mechanism to fructify transactions.

We use the property rights framework of Grossman and Hart (1986) and Hart and Moore (1990) to model the nature of the optimal institutional mechanism or structure. The 'tacit-explicit' dimension of human capital assets coupled with the 'incontractibility' of investment actions are essential to our analysis. The important institutional structures that we analyze are: experts offering consumption human capital, consumer coalitions for sharing and trading human capital, consumer communities organized for innovation, and consumer coalitions with marketers for shared investment in human capital.

We analytically show that the Internet increases human capital assets available for consumer coalitions. Consumers can add more value to products and services when they share, communicate and trade their human capital assets. Expert processors of information emerge as a consequence of optimizing on human capital investments. Some of the institutional structures that emerge for sharing human capital also function as ideal platforms for generating innovations. We show that consumer coalitions with marketers result in greater bargaining power for consumers as a result of using increased human capital inputs. This results in improved welfare for both parties.


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