We study a simple assigning workers to employers, where each pair of a worker and an employer has a potential joint productivity, and the complete information about the market is contained in the matrix of potential productivities.
Under certain conditions that we specify, the market is hierarchical, in the sense that both workers and employers can be ordered according to ability, and the Pareto optimal assignment in terms of maximal total productivity is achieved by matching the top worker with the top employer and so on. In other words, we describe a market situation in which the above simple matching procedure is optimal.
Some further properties of hierarchies are presented. We can state explicit values for the earnings in the worker optimal and employer optimal solutions. We further show that our hierarchy concept is descrete analogue to the Ricardian differential rent model of Sattinger (1979), and that the latter one can easily be derived from our model.
We discuss the compatibility problems between fairness and stability of earnings and assignments. In particular, two notions of fairness that seem sensible in general fail to be stable in hierarchical markets. First, pairwise sharing the Pareto optimal product using a fixed sharing rule generates stable assignments only under a very restrictive assumption. Second, distributing the same amount to all workers preserves stability only in the extreme situation of an equal distribution of ability among workers. A uniform distribution of ability will always generate a smaller overall production than an uneaven distribution in Pareto optimum. we argue for another notion of fairness that turns out to be stable: an average between the worker optimal and employer otimal solutions.
The model can be used to illustrate imperfect competition, economic growth and corruption.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Publisher Info
Paper provided by National Institute of Economic Research in its series Working Paper with number
50.
Length: 23 pages Date of creation: 01 Mar 1996 Date of revision: Handle: RePEc:hhs:nierwp:0050
Contact details of provider: Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden Phone: 46-(0)8-453 59 00 Fax: 46-(0)8-453 59 80 Email: Web page: http://www.konj.se/ More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Britta Larsson).
References listed on IDEAS 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.:
Feldman, Allan M & Kirman, Alan, 1974.
"Fairness and Envy,"
American Economic Review,
American Economic Association, vol. 64(6), pages 995-1005, December.
[Downloadable!] (restricted)
Did you know? Citation analysis on IDEAS includes online papers that are freely accessible and whose text could be automatically analyzed, currently about 210000 papers.