BUSINESS INFORM JOURNAL.

УКР

ENG

Search:

REGISTRATION CERTIFICATE

KV #19905-9705 PR dated 02.04.2013.

FOUNDERS

RESEARCH CENTER FOR INDUSTRIAL DEVELOPMENT PROBLEMS of NAS of Ukraine (KHARKIV, UKRAINE)

ROR

EDRPOU 05481984

According to the decision No. 802 of the National Council of Television and Radio Broadcasting of Ukraine dated 14.03.2024, is registered as a subject in the field of print media.
ID R30-03156

PUBLISHER

Liburkina L. M.

CATALOG

The Limits of Applicability of the Expected Return Criterion in Human Capital Investment by Business Entities
Petrushka T. O., Hurskyi S. I.

Petrushka, Tetyana O., and Hurskyi, Sviatoslav I. (2026) “The Limits of Applicability of the Expected Return Criterion in Human Capital Investment by Business Entities.” Business Inform 9:210–220.
https://doi.org/10.32983/2222-4459-2026-9-210-220

Section: Investment Processes

Article is written in Ukrainian
Downloads/views: 0

Download article (pdf) -

UDC 330.322.011:005.336.4

Abstract:
The study addresses a gap that remains at the intersection of two theoretical lines developed relatively independently of one another: human capital theory, within which the investment decision is evaluated by the criterion of expected return, and the theory of investment under uncertainty, within which measurable and immeasurable forms of not-knowing the future are distinguished. Classical human capital theory, established in the works of Schultz, Becker and Mincer, as well as domestic methods for evaluating investment in personnel development, implicitly assume that the probabilistic structure of future states of the environment is either given or can be reliably estimated from historical data. This assumption ceases to hold for business structures that make human capital investment decisions in an environment subject to abrupt and unforeseeable regime shifts. The aim of the article is to substantiate, on the basis of the Knightian risk–uncertainty distinction, the reasons for which the criterion of maximizing expected return loses determinacy under incalculable uncertainty, and to determine which criterion of investment efficiency remains valid in such an environment. The methodological basis of the study comprises conceptual-comparative analysis of the two theoretical lines, critical review of domestic and international scholarship, and an illustrative quantitative fragment constructed from YouControl financial-reporting data on 41 Ukrainian machine-building enterprises for 2021–2025, comprising 205 firm-year observations stratified by the locus of investment decision-making. The February 2022 event is shown to belong to the Knightian rather than the risk category, which follows from two independent grounds: the non-repeatability of the event itself and the absence of any basis for estimating the probabilities of subsequent transitions of the environment. It is substantiated that standard stochastic sensitivity analysis, despite its outward resemblance, remains within the risk paradigm, since it involves varying parameters within a given distribution, whereas the analysis of uncertainty requires varying the distribution itself. It is formulated that under incalculable uncertainty the expected-return criterion does not acquire a determinate value, since no distribution exists against which an expectation could be validly computed. The illustrative empirical fragment demonstrates that the relationship between headcount dynamics and per-employee compensation dynamics changed sign after February 2022 unequally for enterprises with different loci of investment decision-making, which is consistent with a structural rather than a purely level-based shift. The scientific novelty consists in a criterion according to which investment support for human capital development is evaluated by the capacity of the outcome trajectory to withstand each of the plausible states of the environment, rather than by the growth of the outcome averaged across those states. The novelty further consists in extending the Knightian risk–uncertainty distinction to the class of investment decisions concerning the staff of business structures. The practical value of the results lies in providing management with a methodological basis for abandoning the evaluation of investment alternatives against a single most-likely scenario in favour of testing their robustness across a set of plausible scenarios. The operationalisation of the stability criterion through a set of plausible transition-probability matrices constitutes a direction for further research.

Keywords: Knightian uncertainty; human capital; trajectory stability criterion; risk; regime shift; business structure; investment decision.

Fig.: 2. Tabl.: 1. Formulae: 2. Bibl.: 25.

Petrushka Tetyana O. – Candidate of Sciences (Economics), Associate Professor, Associate Professor, Department of Economics and Business Investment, Lviv Polytechnic National University (12 Stepana Bandery Str., Lvіv, 79013, Ukraine)
Email: [email protected]
Hurskyi Sviatoslav I. – Postgraduate Student, Department of Enterprise Economics and Investments, Lviv Polytechnic National University (12 Stepana Bandery Str., Lvіv, 79013, Ukraine)
Email: [email protected]

List of references in article

Alfaro I., Bloom N. & Lin X. (2024). The finance uncertainty multiplier. Journal of Political Economy, 132(2), 577–615. https://doi.org/10.1086/726230
Antoniuk V. P. (2007). Formuvannia ta vykorystannia liudskoho kapitalu v Ukraini: sotsialno-ekonomichna otsinka ta zabezpechennia rozvytku: monohrafiia [Formation and use of human capital in Ukraine: socio-economic assessment and ensuring development: monograph]. Donetsk: NAN Ukrainy.
Becker G. S. (1962). Investment in human capital: A theoretical analysis. Journal of Political Economy, 70(5), 9–49. https://doi.org/10.1086/258724
Becker G. S. (1964). Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education. New York: Columbia University Press.
Bloom N. (2009). The impact of uncertainty shocks. Econometrica, 77(3), 623–685. https://doi.org/10.3982/ECTA6248
Derhachova V. V. & Sychevska Yu. S. (2023). Peredumovy ta perspektyvy povoiennoho ekonomichnoho vidrodzhennia malykh i serednikh pidpryiemstv v Ukraini [Prerequisites and prospects for the post-war economic revival of small and medium-sized enterprises in Ukraine]. Ekonomika ta suspilstvo, 56. https://doi.org/10.32782/2524-0072/2023-56-137
Dixit A. K. & Pindyck R. S. (1994). Investment under Uncertainty. Princeton: Princeton University Press.
DU «Instytut rehionalnykh doslidzhen imeni M. I. Dolishnoho NAN Ukrainy» (2022). Rozvytok mashynobuduvannia v Ukraini: problemy ta shliakhy yikh vyrishennia: monohrafiia / nauk. red. S. O. Ishchuk [Development of mechanical engineering in Ukraine: problems and ways of their solution: monograph / sci. ed. S. O. Ishchuk]. Lviv: DU «Instytut rehionalnykh doslidzhen imeni M. I. Dolishnoho NAN Ukrainy». http://ird.gov.ua/irdp/p20220002.pdf
Ellsberg D. (1961). Risk, ambiguity, and the Savage axioms. The Quarterly Journal of Economics, 75(4), 643–669.
Gilboa I. & Schmeidler D. (1989). Maxmin expected utility with non-unique prior. Journal of Mathematical Economics, 18(2), 141–153. https://doi.org/10.1016/0304-4068(89)90018-9
Hrishnova O. A. (2001). Liudskyi kapital: formuvannia v systemi osvity i profesiinoi pidhotovky: monohrafiia [Human capital: formation in the system of education and professional training: monograph]. Kyiv: Znannia, KOO.
Knight F. H. (1921). Risk, Uncertainty and Profit. Boston: Houghton Mifflin.
Kryvoviaziuk I. V. (2012). Funktsionuvannia ta rozvytok pidpryiemstv v umovakh kryzy: systemno-analitychnyi pidkhid: monohrafiia [Functioning and development of enterprises in crisis conditions: system-analytical approach: monograph]. Lutsk: LNTU.
Kumar S., Gorodnichenko Y. & Coibion O. (2023). The effect of macroeconomic uncertainty on firm decisions. Econometrica, 91(4), 1297–1332. https://doi.org/10.3982/ECTA21004
Litvinov O. (2019). Intelektualnyi kapital pidpryiemstva: sutnist, otsinka, rozvytok: monohrafiia [Intellectual capital of the enterprise: essence, assessment, development: monograph]. Odesa: Astroprynt.
Luhova V. M. & Makov B. P. (2024). Vykorystannia liudskoho kapitalu u pisliavoiennii vidbudovi Ukrainy [Use of human capital in the post-war reconstruction of Ukraine]. Ukrainskyi zhurnal prykladnoi ekonomiky ta tekhniky, 9(4), 46–50. https://doi.org/10.36887/2415-8453-2024-4-7
Marginson S. (2019). Limitations of human capital theory. Studies in Higher Education, 44(2), 287–301. https://doi.org/10.1080/03075079.2017.1359823
Mincer J. (1958). Investment in human capital and personal income distribution. Journal of Political Economy, 66(4), 281–302. https://doi.org/10.1086/258055
Schultz T. W. (1961). Investment in human capital. The American Economic Review, 51(1), 1–17. https://la.utexas.edu/users/hcleaver/330T/350kPEESchultzInvestmentHumanCapital.pdf
Shevchenko M. V. (2023). Industrialni zminy v ukrainskomu mashynobuduvanni pid vplyvom viiny [Industrial changes in Ukrainian mechanical engineering under the influence of war]. Naukovi pratsi ChNTU [Scientific Works of ChNTU] (pp. 101–117).
Sanchez-Segura M.-I., Dugarte-Pena G.-L., Medina-Dominguez F. & Garcia de Jesus C. (2018). System dynamics and agent-based modelling to represent intangible process assets characterization. Kybernetes, 47(2), 289–306. https://doi.org/10.1108/K-03-2017-0102
Spence M. (1973). Job market signaling. The Quarterly Journal of Economics, 87(3), 355–374. https://doi.org/10.2307/1882010
Universytet ekonomiky ta prava «KROK» (2021). Ekonomika nevyznachenosti: praktychnyi pohliad na problemu: monohrafiia / za red. V. I. Hrushka [Economics of uncertainty: a practical view of the problem: monograph / ed. by V. I. Hrushko]. Kyiv: Universytet ekonomiky ta prava «KROK».
Wald A. (1950). Statistical Decision Functions. New York: John Wiley & Sons ; London: Chapman & Hall.
Zakharova O. V. & Potorochyn S. O. (2012). Metody otsinky investuvannia u liudskyi kapital [Methods for assessing investment in human capital]. Efektyvna ekonomika, 4. http://www.economy.nayka.com.ua/?op=1&z=1056