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Can job competition prevent hold-ups?

  • Jansen, Marcel

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 de Madrid. Departamento de Economía in its series UC3M Working papers. Economics with number we035120.

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Date of creation: Dec 2003
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Handle: RePEc:cte:werepe:we035120
Contact details of provider: Web page: http://www.eco.uc3m.es/

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  1. Kultti, K.K., 1997. "Equivalence of Auctions and Posted Prices," Discussion Paper 1997-57, Tilburg University, Center for Economic Research.
  2. Leonardo Felli & Kevin Roberts, 2000. "Does Competition Solve the Hold-up Problem?," Econometric Society World Congress 2000 Contributed Papers 1714, Econometric Society.
  3. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . "Efficient Non-Contractible Investments," Penn CARESS Working Papers 08d6793d32cab8f6e1f46dac0, Penn Economics Department.
  4. Moen, E.R., 1996. "Human Capital Investments and Market Imperfections," Memorandum 08/1996, Oslo University, Department of Economics.
  5. 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.
  6. Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
  7. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
  8. 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.
  9. 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.
  10. Daron Acemoglu, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 779-804.
  11. Daron Acemoglu & Robert Shimer, 1998. "Holdups and Efficiency with Search Frictions," Working papers 98-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Michael Peters, 2001. "Surplus Extraction and Competition," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 613-631.
  13. 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.
  14. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  15. Kevin Roberts & Leonardo Felli, 2000. "Does Competition Solve the Hold-up Problem?," Economics Series Working Papers 2000-W11, University of Oxford, Department of Economics.
  16. 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.
  17. 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.
  18. Michael Peters, 1997. "A Competitive Distribution of Auctions," Review of Economic Studies, Oxford University Press, vol. 64(1), pages 97-123.
  19. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  20. 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.
  21. Derek Laing & Theodore Palivos & Ping Wang, 1995. "Learning, Matching and Growth," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 115-129.
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