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Can Job Competition Prevent Hold-Ups?

Listed author(s):
  • Jansen, Marcel

    ()

    (Universidad Autónoma de Madrid)

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 is to investigate how this competition affects the investment decisions of firms. Our first result shows that the economy always generates the right number of jobs. However, with random search firms under-invest in capital due to a hold-up problem. In contrast, if workers can direct their search to firms with different capital levels, the equilibrium is efficient. This result contrasts sharply with the predictions of models with ex post bargaining that never yield an efficient allocation. Moreover, our results extend the efficiency of auction mechanisms to an environment with non-contractible investments.

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File URL: http://ftp.iza.org/dp988.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 988.

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Length: 49 pages
Date of creation: Jan 2004
Publication status: published as "Job auctions and hold-ups" in: Labour Economics, 2010, 17 (3), 608-619
Handle: RePEc:iza:izadps:dp988
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  1. 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.
  2. Harold L. Cole & George J. Mailath & Andrew Postlewaite, "undated". ""Efficient Non-Contractible Investments''," CARESS Working Papres 98-13, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  3. Derek Laing & Theodore Palivos & Ping Wang, 1995. "Learning, Matching and Growth," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 115-129.
  4. Leonardo Felli & Kevin Roberts, 2016. "Does Competition Solve the Hold-up Problem?," Economica, London School of Economics and Political Science, vol. 83(329), pages 172-200, 01.
  5. Pissarides, Christopher A, 1984. "Search Intensity, Job Advertising, and Efficiency," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 128-143, January.
  6. 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 811-837, September.
  7. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  8. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  9. Michael Peters, 2001. "Surplus Extraction and Competition," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 613-631.
  10. 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.
  11. 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.
  12. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-849, November.
  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 477-494, May.
  14. 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.
  15. 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.
  16. Kultti, K.K., 1997. "Equivalence of Auctions and Posted Prices," Discussion Paper 1997-57, Tilburg University, Center for Economic Research.
  17. 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.
  18. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-979, December.
  19. Michael Peters, 1997. "A Competitive Distribution of Auctions," Review of Economic Studies, Oxford University Press, vol. 64(1), pages 97-123.
  20. Moen, E.R., 1996. "Human Capital Investments and Market Imperfections," Memorandum 08/1996, Oslo University, Department of Economics.
  21. repec:oxf:wpaper:2000-w11 is not listed on IDEAS
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