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To Each According to . . . ? Markets, Tournaments, and the Matching Problem with Borrowing Constraints

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Fernandez, Raquel
Gali, Jordi

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Abstract

We compare the performance of markets and tournaments as allocative mechanisms in an economy with borrowing constraints. The economy consists of a continuum of individuals who differ in their initial wealth and ability level. These must be assigned to a continuum of investment opportunities or inputs of different productivity. With perfect capital markets matching is efficient under both mechanisms. Markets, however, generate higher aggregate consumption because of the waste associated with the production of signals under tournaments. When borrowing constraints are present, tournaments dominate markets in terms of matching efficiency and, for sufficiently powerful signalling technologies, also in terms of aggregate consumption. Copyright 1999 by The Review of Economic Studies Limited.

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Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 66 (1999)
Issue (Month): 4 (October)
Pages: 799-824
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Handle: RePEc:bla:restud:v:66:y:1999:i:4:p:799-824

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  1. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 35-52, January. [Downloadable!] (restricted)
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  3. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug.. [Downloadable!] (restricted)
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  4. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-64, October. [Downloadable!] (restricted)
  5. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April. [Downloadable!] (restricted)
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  6. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
  7. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December. [Downloadable!] (restricted)
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  1. Ed Hopkins, 2006. "Job Market Signalling of Relative Position, or Becker Married to Spence," Levine's Bibliography 321307000000000553, UCLA Department of Economics. [Downloadable!]
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  2. Ed Hopkins & Tatiana Kornienko, 2006. "Which Inequality? The Inequality of Resources Versus the Inequality of Rewards," Levine's Bibliography 784828000000000621, UCLA Department of Economics. [Downloadable!]
  3. Daniele Checchi & Giuseppe Bertola, 2001. "Sorting and private education in Italy," Departemental Working Papers 2001-21, Department of Economics University of Milan Italy. [Downloadable!]
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  4. Changhui Kang, 2007. "Does Money Matter? The Effect of Private Educational Expenditures on Academic Performance," Departmental Working Papers wp0704, National University of Singapore, Department of Economics. [Downloadable!]
  5. Yohanes E. Riyanto & Linda A. Toolsema, 2007. "Corporate Social Responsibility in a Corporate Governance Framework," Departmental Working Papers wp0702, National University of Singapore, Department of Economics. [Downloadable!]
  6. Hoppe, Heidrun C. & Moldovanu, Benny & Sela, Aner, 2006. "The Theory of Assortative Matching Based on Costly Signals," CEPR Discussion Papers 5543, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Ângela Albernaz & Francisco H. G. Ferreira & Creso Franco, 2002. "Qualidade e eqüidade na educação fundamental brasileira," Textos para discussão 455, Department of Economics PUC-Rio (Brazil). [Downloadable!]
  8. Bratti, Massimiliano & Checchi, Daniele & de Blasio, Guido, 2008. "Does the Expansion of Higher Education Increase the Equality of Educational Opportunities? Evidence from Italy," IZA Discussion Papers 3361, Institute for the Study of Labor (IZA). [Downloadable!]
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  10. Gary-Bobo, Robert J. & Trannoy, Alain, 2005. "Efficient Tuition & Fees, Examinations and Subsidies," CEPR Discussion Papers 5011, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  11. Murat F. Iyigun & Andrew T. Levin, 1998. "What determines public support for affirmative action?," International Finance Discussion Papers 620, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  12. Raquel Fernandez & Richard Rogerson, 2000. "Sorting and Long-Run Inequality," NBER Working Papers 7508, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Joan Esteban & Debraj Ray, 2006. "Inequality, Lobbying, and Resource Allocation," American Economic Review, American Economic Association, vol. 96(1), pages 257-279, March. [Downloadable!]
  14. Che, Yeon-Koo & Gale, Ian, 2006. "Market versus Non-Market Assignment of Initial Ownership," MPRA Paper 6095, University Library of Munich, Germany, revised 30 May 2006. [Downloadable!]
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  15. Fernandez, R., 1998. "Education and Borrowing Constraints: Tests vs Prices," Working Papers 98-17, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  16. Legros, Patrick & Newman, Andrew, 2000. "Monotone Matching In Perfect And Imperfect Worlds," CEPR Discussion Papers 2396, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  17. Robert A. J. Dur & Amihai Glazer, 2005. "Subsidizing Enjoyable Education," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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