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Mis-match, Re-match, and Investment

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  • Thomas Gall

    (Boston University and University of Bonn)

  • Patrick Legros

    (ECARES, Universit´e Libre de Bruxelles and CEPR)

  • Andrew F. Newman

    (Boston University and CEPR)

Abstract

Mobility depends essentially on investment, which often occurs in environments in which individuals match (school) or will match after investing (the labor market). Where partners can transfer surplus to each other only imperfectly (NTU), the pattern of matching will typically be inefficient, involving too much segregation, and providing a possible rationale for ”associational redistribution” such as affirmative action: a social planner who could enforce a matching outcome that differs from the market outcome may raise aggregate social surplus. We show that this static inefficiency due to NTU can be exacerbated in a dynamic environment in which individuals’ productive types are determined by investments made before they match. In contrast to TU models there will typically be investment distortions, with high types over-investing and low types under-investing. We study several forms of associational redistribution, assessing the differential effects of achievement-based and background-based polices; early-stage and later-stage policies; and interactions between them.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - The Institute for Economic Development Working Papers Series with number dp-189.

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Length: 47
Date of creation: May 2009
Date of revision:
Handle: RePEc:bos:iedwpr:dp-189

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Keywords: Matching; nontransferable utility; affirmative action; segregation; education;

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References

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  1. David Card & Jesse Rothstein, 2005. "Racial Segregation and the Black-White Test Score Gap," Working Papers 879, Princeton University, Department of Economics, Industrial Relations Section..
  2. Hong, Lu & Page, Scott E., 2001. "Problem Solving by Heterogeneous Agents," Journal of Economic Theory, Elsevier, vol. 97(1), pages 123-163, March.
  3. Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 237-64, April.
  4. Thomas Gall & Patrick Legros & Andrew Newman, 2006. "The timing of education," ULB Institutional Repository 2013/7026, ULB -- Universite Libre de Bruxelles.
  5. 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.
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  12. Roland G. Fryer, Jr. & Glenn C. Loury, 2005. "Affirmative Action and Its Mythology," NBER Working Papers 11464, National Bureau of Economic Research, Inc.
  13. Patrick Legros & Andrew F. Newman, 2002. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-149, Boston University - Department of Economics, revised Nov 2004.
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Citations

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Cited by:
  1. Fernández, Raquel, 2009. "Women's Rights and Development," CEPR Discussion Papers 7464, C.E.P.R. Discussion Papers.
  2. Bhaskar, V. & Hopkins, Ed, 2011. "Marriage as a Rat Race: Noisy Pre-Marital Investments with Assortative Matching," SIRE Discussion Papers 2011-65, Scottish Institute for Research in Economics (SIRE).
  3. Raquel Fernández, 2009. "Women's Rights and Development," NBER Working Papers 15355, National Bureau of Economic Research, Inc.
  4. Andrea Canidio, 2012. "The Allocation of Scientific Talent," CEU Working Papers 2012_7, Department of Economics, Central European University, revised 15 May 2012.
  5. Raquel Fernandez, 2010. "Women's Rights and Development," Working Papers 2011-029, Human Capital and Economic Opportunity Working Group.
  6. Andrea, Canidio, 2009. "The production of science," MPRA Paper 25218, University Library of Munich, Germany.
  7. Gall, Thomas, 2013. "Surplus efficiency of ex ante investments in matching markets with nontransferabilities," Discussion Paper Series In Economics And Econometrics 360186, Economics Division, School of Social Sciences, University of Southampton.
  8. Andrea, Canidio, 2010. "Absorptive capacity, the allocation of scientists, and firms' research productivity," MPRA Paper 30257, University Library of Munich, Germany.

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