1,721,065 research outputs found
Surplus efficiency of ex ante investments in matching markets with nontransferabilities
No full textDoes a competitive equilibrium in a matching market provide adequate incentives for investments made before the market when utility is not perfectly transferable? In a one-sided market with a continuum of agents and finite types there is a constrained surplus efficient equilibrium, when a social planner can only affect investments but not payoffs nor matches, if an equal treatment property holds in equilibrium. Sufficient (but not full) utility transferability in a well defined sense implies this property. Ex post efficiency of payoffs (i.e., individual payoffs maximize the surplus in each match) alone is not sufficient to ensure that equilibrium investments maximize aggregate surplus
INEQUALITY, INCOMPLETE CONTRACTS, AND THE SIZE DISTRIBUTION OF BUSINESS FIRMS
No full textThis article analyzes the effects of intrafirm bargaining on the formation of firms in an economy with imperfect capital markets and contracting constraints. In equilibrium, wealth inequality induces a heterogeneous distribution of firm sizes, allowing for firms both too small and too large in terms of technical efficiency. The findings connect well to empirical facts such as the missing middle of firm-size distributions in developing countries. The model can encompass a nonmonotonic relationship between aggregate output and inequality. It turns out that an inflow of capital may indeed decrease output in absolute terms. Copyright (2010) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
Lotteries, inequality, and market imperfection: Galor and Zeira go gambling
No full textPoverty trap, Credit market imperfections, Investment indivisibility, Lotteries, O16, D51, D31,
Losing face
No full textWhen Al makes an offer to Betty that Betty observes and rejects, Al may suffer a painful and costly ‘loss of face’ (LoF). LoF can be avoided by letting the vulnerable side move second, or by setting up ‘Conditionally Anonymous Environments’ that only reveal when both parties say yes. This can impact bilateral matching problems, e.g., marriage markets, research partnering, and international negotiations. We model this assuming asymmetric information, continuous signals of individuals’ binary types, linear marriage production functions, and a primitive LoF term component to utility. LoF makes rejecting one’s match strictly preferred to being rejected, making the ‘high types always reject’ equilibrium stable. LoF may have non-monotonic effects on stable interior equilibria. A small LoF makes high types more selective, making marriage less common and more assortative. A greater LoF (for males only) makes low-type-males reverse snobs, which makes high-females less choosy, with ambiguous effects on the marriage rate
The value of public information in vertically differentiated markets
No full textGenerating public information about vertically differentiated products increases expected vertical differentiation and softens competition. We show that this will induce firms to overinvest (underinvest) in information generation, if the deadweight loss in the subsequent market equilibrium is high (low). Moreover, information generation by one firm has a positive externality on the other firm. It follows that coordination (e.g. via industry associations) increases information generation. When product qualities are endogenous, information generation may prevent quality degradation and thus have an additional social benefit
Information generation in vertically differentiated markets
No full textIn a model of vertical competition two firms draw costly public signals that are informative about the quality of their products and then competitively set prices. When each firm generates information independently from the other, there will be overinvestment (underinvestment) in information generation if the market share of the quality follower in the subsequent market equilibrium is high (low). Moreover, information generation by one firm has a positive externality on the other firm. Hence, coordination (e.g. via industry associations) increases information generation. When product qualities are endogenous, information generation may prevent quality degradation and thus have an additional social benefit
Rewarding idleness
No full textMarket wages reflect expected productivity by using signals of past performance and past experience. These signals are generated at least partially on the job and create incentives for agents to choose high-profile and highly visible tasks. If agents have private information about the profitability of different tasks, firms may wish to prevent over- investment in visible tasks by increasing their opportunity costs. Firms can do so, for instance, by using employee perks. Heterogeneity in employee types induces substantial diversity in organizational and contractual choices, particularly regarding the extent to which conspicuous activities are tolerated or encouraged, the use of employee perks, and contingent wage
Evaluating solutions to the problem of false positives
No full textA current challenge for the scientific community is the choice of appropriate policies to reduce the rate of false positives. Existing proposals differ in whether to prioritize tackling omission through transparency requirements, punishing more severe transgressions, or possibly both. We use a formal model to evaluate these possible solutions. We find that a policy that prohibitively increases the cost of ‘misdemeanor’ types of questionable research practices robustly decreases the overall rate of researcher misconduct, because the rate of ‘felonies’, such as fabrication, also decreases. Therefore proposals that aim to prevent lying by omission by enforcing reporting guidelines are likely to be effective in reducing researcher misconduct, but measures such as government audits (purported to counteract pure fraud) can backfire. Moreover, we find that an increase in the rewards of publication need not increase overall misconduct
College diversity and investment incentives
No full textThis paper studies the aggregate economic effects of diversity policies such as affirmative action in college admission. If agents are constrained in the side payments they can make, the free market allocation displays excessive segregation relative to the first-best. Affirmative action policies can restore diversity within colleges but also affect incentives to invest in pre-college scholastic achievement. Affirmative action policies that are achievement-based can increase aggregate investment and income, reduce inequality, and increase aggregate welfare relative to the free market outcome. They may also be more effective than decentralized policies such as cross-subsidization of students by colleges
On the road to social mobility? Affirmative action and major choice
No full textStudents from disadvantaged backgrounds remain underrepresented in prestigious and high-paying fields of study, such as STEM. While affirmative action (AA) policies have been shown to increase the representation of minority students in selective universities, they may also affect students’ choice of majors, with potential implications for social mobility. We study a policy implemented by a highly selective Brazilian university that expanded the range of majors accessible to lower-SES applicants, using it as a natural experiment. The policy led targeted students to apply to and enroll in more prestigious, higher-paying STEM majors and attenuated the influence of socioeconomic background on major choices. Our findings suggest that in contexts where applicants select their majors before university entry and these choices are influenced by strategic considerations, AA policies can be particularly effective in promoting social mobility
- …
