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Interdependent preferences and segregating equilibria

  • Cabrales, Antonio
  • Calvó-Armengol, Antoni

This paper shows that models where preferences of individuals depend not only on their allocations, but also on the well-being of other persons, can produce both large and testable effects. We study the allocation of workers with heterogeneous productivities to firms. We show that even small deviations from purely “selfish” preferences leads to widespread workplace skill segregation. This result holds for a broad class and distribution of social preferences. That is, workers of different abilities tend to work in different firms, as long as they care somewhat more about the utilities of workers who are “close”.

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File URL: http://e-archivo.uc3m.es/bitstream/handle/10016/674/we072313.pdf?sequence=1
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Paper provided by Universidad Carlos III de Madrid. Departamento de Economía in its series UC3M Working papers. Economics with number we072313.

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Date of creation: Mar 2007
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Handle: RePEc:cte:werepe:we072313
Contact details of provider: Web page: http://www.eco.uc3m.es/

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  1. Saint-Paul, Gilles, 1999. "On the Distribution of Income and Worker Assignment under Intra-Firm Spillovers, with an Application to Ideas And Networks," CEPR Discussion Papers 2290, C.E.P.R. Discussion Papers.
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  23. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
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  26. Fershtman, Chaim & Hvide, Hans K & Weiss, Yoram, 2003. "Cultural Diversity, Status Concerns and the Organization of Work," CEPR Discussion Papers 3982, C.E.P.R. Discussion Papers.
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