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Mismatch, rematch, and investment

  • Gall, Thomas
  • Legros, Patrick
  • Newman, Andrew

This paper studies rigidities in sharing joint payoffs (non-transferability) as a source of excessive segregation in labor or education markets. The resulting distortions in ex-ante investments, such as education acquisition, link such mismatches to the possibility of simultaneous under-investment by the underprivileged and over-investment by the privileged. This creates an economic rationale for rematch policies like affirmative action, which have to be evaluated in terms of both incentives and the assignment quality. We compare a number of such policies that have empirical counterparts. Our results indicate that some of these policies can be beneficial on both equity and efficiency grounds.

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File URL: http://eprints.soton.ac.uk/348658/1/__userfiles.soton.ac.uk_Users_nl2_mydesktop_REF_files_348658%20with%20WP%20cover.pdf
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Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 189.

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Date of creation: 01 Feb 2012
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Handle: RePEc:stn:sotoec:189
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  1. Leonardo Felli & Kevin Roberts, 2000. "Does Competition Solve the Hold-Up Problem?," CESifo Working Paper Series 317, CESifo Group Munich.
  2. Goldin, Claudia & Kuziemko, Ilyana & Katz, Lawrence, 2006. "The Homecoming of American College Women: The Reversal of the College Gender Gap," Scholarly Articles 2962611, Harvard University Department of Economics.
  3. Hoppe, Heidrun C. & Moldovanu, Benny & Sela, Aner, 2005. "The Theory of Assortative Matching Based on Costly Signals," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 85, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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  7. Thomas Gall & Patrick Legros & Andrew Newman, 2006. "The timing of education," ULB Institutional Repository 2013/7026, ULB -- Universite Libre de Bruxelles.
  8. David Card & Jesse Rothstein, 2005. "Racial Segregation and the Black-White Test Score Gap," Working Papers 93, Princeton University, Department of Economics, Center for Economic Policy Studies..
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  12. Raquel Fernández & Richard Rogerson, 2001. "Sorting and Long-Run Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1305-1341.
  13. Patrick Legros & Andrew F. Newman, 2007. "Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities," Econometrica, Econometric Society, vol. 75(4), pages 1073-1102, 07.
  14. John C. Harsanyi, 1953. "Cardinal Utility in Welfare Economics and in the Theory of Risk-taking," Journal of Political Economy, University of Chicago Press, vol. 61, pages 434.
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  16. Hong, Lu & Page, Scott E., 2001. "Problem Solving by Heterogeneous Agents," Journal of Economic Theory, Elsevier, vol. 97(1), pages 123-163, March.
  17. Chris Bidner, 2010. "A Spillover-Based Theory of Credentialism," Discussion Papers 2010-10, School of Economics, The University of New South Wales.
  18. Byron Lutz, 2011. "The End of Court-Ordered Desegregation," American Economic Journal: Economic Policy, American Economic Association, vol. 3(2), pages 130-68, May.
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  20. Board, Simon, 2009. "Monopolistic group design with peer effects," Theoretical Economics, Econometric Society, vol. 4(1), March.
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