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Can Job Competition Prevent Hold-Ups?

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  • Marcel Jansen

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Abstract

We consider an economy in which firms need to invest in capital before they can advertise a job, while applicants may have to compete for jobs. Our aim to investigate how this competition affects the investment decisions of firms. Our first finding shows that the economy always generates the right number of jobs. However, with random search firms under-invest in capital. In contrast, if workers can direct their search towards firms with different capital levels, the equilibrium is efficient. This result contrasts sharply with the predictions of models with ex post wage bargaining that never yield an efficien allocation. Moreover, our results extend the efficiency of auction mechanisms to an environment with non-contractible investments.

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we035120.

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Date of creation: Dec 2003
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Handle: RePEc:cte:werepe:we035120

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  1. Felli, L. & Roberts, K., 2000. "Does Competition Solve the Hold-Up Problem?," Economics Papers 2000-w11, Economics Group, Nuffield College, University of Oxford.
  2. repec:wop:humbsf:2000-72 is not listed on IDEAS
  3. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-49, November.
  4. Laing, Derek & Palivos, Theodore & Wang, Ping, 1995. "Learning, Matching and Growth," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 115-29, January.
  5. Masters, Adrian M, 1998. "Efficiency of Investment in Human and Physical Capital in a Model of Bilateral Search and Bargaining," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 477-94, May.
  6. Pissarides, Christopher A, 1984. "Search Intensity, Job Advertising, and Efficiency," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 128-43, January.
  7. Kultti, Klaus, 1999. "Equivalence of Auctions and Posted Prices," Games and Economic Behavior, Elsevier, vol. 27(1), pages 106-113, April.
  8. Peters, Michael, 2001. "Surplus Extraction and Competition," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 613-31, July.
  9. Acemoglu, Daron, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 779-804, August.
  10. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . ""Efficient Non-Contractible Investments''," CARESS Working Papres 98-13, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  11. Steven J. Davis, 2001. "The Quality Distribution of Jobs and the Structure of Wages in Search Equilibrium," NBER Working Papers 8434, National Bureau of Economic Research, Inc.
  12. Michael Peters, 1995. "A Competitive Distribution of Auctions," Working Papers peters-95-03, University of Toronto, Department of Economics.
  13. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  14. Julien, B. & Kennes, J. & King, I., 1998. "Bidding for Labour," Discussion Papers dp98-03, Department of Economics, Simon Fraser University.
  15. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  16. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  17. Moen, E.R., 1996. "Human Capital Investments and Market Imperfections," Memorandum 08/1996, Oslo University, Department of Economics.
  18. Moen, Espen R, 1999. "Education, Ranking, and Competition for Jobs," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 694-723, October.
  19. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-79, December.
  20. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  21. MacLeod, W Bentley & Malcomson, James M, 1993. "Investments, Holdup, and the Form of Market Contracts," American Economic Review, American Economic Association, vol. 83(4), pages 811-37, September.
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Cited by:
  1. Conley, John P. & Neilson, William, 2009. "Endogenous games and equilibrium adoption of social norms and ethical constraints," Games and Economic Behavior, Elsevier, vol. 66(2), pages 761-774, July.

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