Contracts and on-the-job search
AbstractThe paper studies a matching model with on-the-job search, transferable utility and heterogeneous agents. Matched agents can set the conditions under which a given match can be dissolved. It is shown that matched agents use sign-off fees to extract all capital gains from trade when a third agent is contacted. In equilibrium, this redistributes wealth towards less able individuals, reduces the likelihood that any given match will be rejected and, given the conditions, it yields efficiency. Although externalities arise when a match is formed and when turnover occurs, the decentralized outcome is efficient when the production function is sub-modular and the difference in abilities is big enough. The results obtained may provide theoretical support for the type of contracts used in some markets, such as sports markets.
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Bibliographic InfoArticle provided by Elsevier in its journal Labour Economics.
Volume (Year): 15 (2008)
Issue (Month): 3 (June)
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Web page: http://www.elsevier.com/locate/labeco
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shimer, R. & Smith, L., 1997.
"Assortative Matching and Search,"
97-2a, Massachusetts Institute of Technology (MIT), Department of Economics.
- Peter A. Diamond & Eric Maskin, 1979. "An Equilibrium Analysis of Search and Breach of Contract, I: Steady States," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 282-316, Spring.
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