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Mismatch, rematch, and investment

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  • Gall, Thomas
  • Legros, Patrick
  • Newman, Andrew

Abstract

This paper studies rigidities in sharing joint payoffs (non-transferability) as a source of excessive segregation in labor or education markets. The resulting distortions in ex-ante investments, such as education acquisition, link such mismatches to the possibility of simultaneous under-investment by the underprivileged and over-investment by the privileged. This creates an economic rationale for rematch policies like affirmative action, which have to be evaluated in terms of both incentives and the assignment quality. We compare a number of such policies that have empirical counterparts. Our results indicate that some of these policies can be beneficial on both equity and efficiency grounds.

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File URL: http://eprints.soton.ac.uk/348658/1/__userfiles.soton.ac.uk_Users_nl2_mydesktop_REF_files_348658%20with%20WP%20cover.pdf
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Bibliographic Info

Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 189.

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Date of creation: 01 Feb 2012
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Handle: RePEc:stn:sotoec:189

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  1. Raquel Fernandez & Richard Rogerson, 2000. "Sorting and Long-Run Inequality," NBER Working Papers 7508, National Bureau of Economic Research, Inc.
  2. John C. Harsanyi, 1953. "Cardinal Utility in Welfare Economics and in the Theory of Risk-taking," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 61, pages 434.
  3. Steven N. Durlauf, 1992. "A Theory of Persistent Income Inequality," NBER Working Papers 4056, National Bureau of Economic Research, Inc.
  4. Leonardo Felli & Kevin Roberts, 2000. "Does Competition Solve the Hold-Up Problem?," CESifo Working Paper Series 317, CESifo Group Munich.
  5. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 97-2a, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Hoppe, Heidrun C. & Moldovanu, Benny & Sela, Aner, 2005. "The Theory of Assortative Matching Based on Costly Signals," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 85, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  7. Patrick Legros & Andrew F. Newman, 2003. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Economics Working Papers, Institute for Advanced Study, School of Social Science 0030, Institute for Advanced Study, School of Social Science.
  8. Goldin, Claudia & Kuziemko, Ilyana & Katz, Lawrence, 2006. "The Homecoming of American College Women: The Reversal of the College Gender Gap," Scholarly Articles 2962611, Harvard University Department of Economics.
  9. David Card & Jesse Rothstein, 2005. "Racial Segregation and the Black-White Test Score Gap," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 879, Princeton University, Department of Economics, Industrial Relations Section..
  10. Board, Simon, 2009. "Monopolistic group design with peer effects," Theoretical Economics, Econometric Society, Econometric Society, vol. 4(1), March.
  11. Thomas Gall & Patrick Legros & Andrew Newman, 2006. "The timing of education," ULB Institutional Repository 2013/7026, ULB -- Universite Libre de Bruxelles.
  12. repec:att:wimass:9613 is not listed on IDEAS
  13. Michael Peters & Aloysius Siow, 2000. "Competing Pre-marital Investments," Working Papers, University of Toronto, Department of Economics peters-00-01, University of Toronto, Department of Economics.
  14. Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 63(2), pages 237-64, April.
  15. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, Econometric Society, vol. 51(6), pages 1799-819, November.
  16. Roland G. Fryer Jr. & Glenn C. Loury, 2005. "Affirmative Action and Its Mythology," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 19(3), pages 147-162, Summer.
  17. Chris Bidner, 2010. "A Spillover-Based Theory of Credentialism," Discussion Papers, School of Economics, The University of New South Wales 2010-10, School of Economics, The University of New South Wales.
  18. Hong, Lu & Page, Scott E., 2001. "Problem Solving by Heterogeneous Agents," Journal of Economic Theory, Elsevier, Elsevier, vol. 97(1), pages 123-163, March.
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Cited by:
  1. Fernández, Raquel, 2009. "Women's Rights and Development," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7464, C.E.P.R. Discussion Papers.
  2. Andrea, Canidio, 2010. "Absorptive capacity, the allocation of scientists, and firms' research productivity," MPRA Paper 30257, University Library of Munich, Germany.
  3. Gall, Thomas, 2013. "Surplus efficiency of ex ante investments in matching markets with nontransferabilities," Discussion Paper Series In Economics And Econometrics, Economics Division, School of Social Sciences, University of Southampton 360186, Economics Division, School of Social Sciences, University of Southampton.
  4. Raquel Fernández, 2009. "Women's Rights and Development," NBER Working Papers 15355, National Bureau of Economic Research, Inc.
  5. Ed Hopkins (University of Edinburgh) and V. Bhaskar (University College London), 2011. "Marriage as a Rat Race: Noisy Pre-Marital Investments with Assortative Matching," ESE Discussion Papers, Edinburgh School of Economics, University of Edinburgh 210, Edinburgh School of Economics, University of Edinburgh.
  6. Andrea Canidio, 2012. "The Allocation of Scientific Talent," CEU Working Papers, Department of Economics, Central European University 2012_7, Department of Economics, Central European University, revised 15 May 2012.
  7. Andrea, Canidio, 2009. "The production of science," MPRA Paper 25218, University Library of Munich, Germany.
  8. Bhaskar, V. & Hopkins, Ed, 2011. "Marriage as a Rat Race: Noisy Pre-Marital Investments with Assortative Matching," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2011-65, Scottish Institute for Research in Economics (SIRE).
  9. Raquel Fernandez, 2010. "Women's Rights and Development," Working Papers, Human Capital and Economic Opportunity Working Group 2011-029, Human Capital and Economic Opportunity Working Group.

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