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Interdependent preferences and segregating equilibria

  • Antonio Cabrales

    ()

  • Antoni Calvo-Armengol

    ()

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/10016/674/1/we072313.pdf
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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we072313.

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Date of creation: Mar 2007
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Handle: RePEc:cte:werepe:we072313
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  29. 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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