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Occupational Choice, incentives and wealth distribution

Listed author(s):
  • CITANNA, Alessandro
  • CHAKRABORTY, Archishman

    (Baruch College, CUNY, New York)

We consider a model of endogenous occupational choice in economies with a continuum of individuals who differ in their endowments. Individuals have a choice of remaining self-employed or engaging in productive matches with another individual, i.e., forming firms. Matches are subject to a moral hazard problem with limited liability constraints. We suppose that the division of the gains from such matches is endogenous and determined by competitive market forces. We characterize the equilibrium matching patterns as a function of the nature (symmetry) of the underlying incentive problem within a firm. We give necessary and sufficient conditions for "segregation" (wealth-homogeneous firms) to occur in equilibrium. We show that the equilibrium distributions of occupations, utilities and surplus typically depend on the distribution of wealth in the economy, possibly in nonmonotonic ways. We study the "trickle down" effects of taxation. We show how financial markets imperfections or matching restrictions may restore segregation.

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File URL: http://www.hec.fr/var/fre/storage/original/application/eeff9a00f7f07bf519228b99321268e6.pdf
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Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 720.

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Length: 52 pages
Date of creation: 01 Jan 2001
Handle: RePEc:ebg:heccah:0720
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  3. Chakraborty, Archishman & Citanna, Alessandro, 2005. "Occupational choice, incentives and wealth distribution," Journal of Economic Theory, Elsevier, vol. 122(2), pages 206-224, June.
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  8. Roth,Alvin E. & Sotomayor,Marilda A. Oliveira, 1992. "Two-Sided Matching," Cambridge Books, Cambridge University Press, number 9780521437882.
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