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A Stochastic Assignment Model

Listed author(s):
  • Alberto Naudon

In this article I study a dynamic stochastic extension of the “differential rents” model of Sattinger (1979) that generates endogenous mismatch in equilibrium. I depart from the standard assignment literature in assuming that agents’ characteristics may change over time and that re-matching is feasible but costly. I show that, when agent characteristics are stochastic, rigidities that prevent partners from re-matching may change the matching outcome, even if the level of output continues to satisfy monotone differences in type. I construct and prove the existence of an equilibrium characterized by (i) a positive assortative matching between agents that decide to re-match and (ii) bands of inaction for existing matches.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 558.

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Date of creation: Mar 2010
Handle: RePEc:chb:bcchwp:558
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  1. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
  2. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 49-100.
  3. Nicholas Bloom & John Van Reenen, 2007. "Measuring and Explaining Management Practices Across Firms and Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 122(4), pages 1351-1408.
  4. Holmes, Thomas J & Schmitz, James A, Jr, 1995. "On the Turnover of Business Firms and Business Managers," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 1005-1038, October.
  5. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-880, June.
  6. Patrick Legros & Andrew F. Newman, 2007. "Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities," Econometrica, Econometric Society, vol. 75(4), pages 1073-1102, 07.
  7. Marko Tervio, 2008. "The Difference That CEOs Make: An Assignment Model Approach," American Economic Review, American Economic Association, vol. 98(3), pages 642-668, June.
  8. Sattinger, Michael, 1979. "Differential Rents and the Distribution of Earnings," Oxford Economic Papers, Oxford University Press, vol. 31(1), pages 60-71, March.
  9. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
  10. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-846, July-Aug..
  11. Marcus Cobb, 2009. "Forecasting Chilean Inflation From Disaggregate Components," Working Papers Central Bank of Chile 545, Central Bank of Chile.
  12. Patrick Legros & Andrew F. Newman, 2002. "Monotone Matching in Perfect and Imperfect Worlds," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 925-942.
  13. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
  14. Axel Anderson & Lones Smith, 2006. "Assortative Matching and Reputation," Cowles Foundation Discussion Papers 1553, Cowles Foundation for Research in Economics, Yale University.
  15. Dalibor Eterovic, 2009. "Policy Reform Under Electoral Uncertainty," Working Papers Central Bank of Chile 546, Central Bank of Chile.
  16. Theodore Papageorgiou, 2014. "Learning Your Comparative Advantages," Review of Economic Studies, Oxford University Press, vol. 81(3), pages 1263-1295.
  17. A. D. Roy, 1951. "Some Thoughts On The Distribution Of Earnings," Oxford Economic Papers, Oxford University Press, vol. 3(2), pages 135-146.
  18. Holmes, Thomas J & Schmitz, James A, Jr, 1996. "Managerial Tenure, Business Age, and Small Business Turnover," Journal of Labor Economics, University of Chicago Press, vol. 14(1), pages 79-99, January.
  19. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
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