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Occupational Choice with Endogenous Spillovers

Author

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  • Facundo Albornoz
  • Antonio Cabrales
  • Esther Hauk

Abstract

We study a model that integrates productive and socializing ef- forts with occupational choice in the presence of endogenous spillovers. Among other results, we show that more talented individuals work harder and contribute more to the emergence of externalities, but also have incentives to segregate. Average socializing increases in the average productivity of the occupation. Also, the size of an occupation grows in its network synergies. Turning to efficiency, we show that individuals underinvest in productive and socializing effort, and sort themselves inefficiently into occupations. We derive the optimal subsidy to achieve efficient effort within occupations and show that efficient sorting into occupations can always be achieved by a linear tax. We illustrate the importance for the government to intervene on both margins, as solving only the within occupation investment problem can exacerbate misallocations due to network choice and may even reduce welfare in presence of congestion costs.

Suggested Citation

  • Facundo Albornoz & Antonio Cabrales & Esther Hauk, 2017. "Occupational Choice with Endogenous Spillovers," Working Papers 972, Barcelona School of Economics.
  • Handle: RePEc:bge:wpaper:972
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    Cited by:

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    2. Hong, Jieying & Zhang, Rui, 2021. "Socialization, job search and integration," Economic Modelling, Elsevier, vol. 101(C).
    3. Vincent Boucher & Carlo L. Del Bello & Fabrizio Panebianco & Thierry Verdier & Yves Zenou, 2023. "Education Transmission and Network Formation," Journal of Labor Economics, University of Chicago Press, vol. 41(1), pages 129-173.
    4. Gradstein, Mark & Justman, Moshe, 2019. "Cultural interaction and economic development: An overview," European Journal of Political Economy, Elsevier, vol. 59(C), pages 243-251.
    5. repec:hal:spmain:info:hdl:2441/5r0qo9lp3v97hptv0tki570p06 is not listed on IDEAS
    6. repec:hal:spmain:info:hdl:2441/5fhe3c1k6b8mu8jtd19s688u7s is not listed on IDEAS
    7. Ghazala Azmat & Manuel Bagues & Antonio Cabrales & Nagore Iriberri, 2018. "What you don’t know... Can’t hurt you? A natural field experiment on relative performance feedback in higher education," Sciences Po publications info:hdl:2441/5r0qo9lp3v9, Sciences Po.
    8. Zenou, Yves & Boucher, Vincent & Tumen, Semih & Vlassopoulos, Michael & Wahba, Jackline, 2020. "Ethnic Mixing in Early Childhood: Evidence from a Randomized Field Experiment and a Structural Model," CEPR Discussion Papers 15528, C.E.P.R. Discussion Papers.
    9. Ghazala Azmat & Manuel Bagues & Antonio Cabrales & Nagore Iriberri, 2019. "What You Don’t Know…Can’t Hurt You? A Natural Field Experiment on Relative Performance Feedback in Higher Education," Management Science, INFORMS, vol. 65(8), pages 3714-3736, August.

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    More about this item

    Keywords

    occupational choice; Social interactions; endogenous spillovers; optimal taxation;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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