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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. Steven N. Durlauf, 1992. "A Theory of Persistent Income Inequality," NBER Working Papers 4056, National Bureau of Economic Research, Inc.
  2. Thomas Gall & Patrick Legros & Andrew Newman, 2006. "The Timing of Education," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 427-435, 04-05.
  3. Michael Peters & Aloysius Siow, 2001. "Competing Premarital Investment," Working Papers peters-01-02, University of Toronto, Department of Economics.
  4. Leonardo Felli & Kevin Roberts, . "Does Competition Solve the Hold-up Problem?," CARESS Working Papres 00-04, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  5. Hoppe, Heidrun C. & Moldovanu, Benny & Sela, Aner, 2006. "The Theory of Assortative Matching Based on Costly Signals," CEPR Discussion Papers 5543, C.E.P.R. Discussion Papers.
  6. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug..
  7. Claudia Goldin & Lawrence F. Katz & Ilyana Kuziemko, 2006. "The Homecoming of American College Women: The Reversal of the College Gender Gap," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 133-156, Fall.
  8. Fernández, Raquel & Rogerson, Richard, 2000. "Sorting and Long-Run Inequality," CEPR Discussion Papers 2352, C.E.P.R. Discussion Papers.
  9. Card, David & Rothstein, Jesse, 2007. "Racial segregation and the black-white test score gap," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2158-2184, December.
  10. Chris Bidner, 2010. "A Spillover-Based Theory of Credentialism," Discussion Papers 2010-10, School of Economics, The University of New South Wales.
  11. Roland G. Fryer Jr. & Glenn C. Loury, 2005. "Affirmative Action and Its Mythology," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 147-162, Summer.
  12. 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.
  13. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-819, November.
  14. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
  15. Simon Board, 2007. "Monopolistic Group Design with Peer Effects," Working Papers tecipa-276, University of Toronto, Department of Economics.
  16. repec:att:wimass:9613 is not listed on IDEAS
  17. Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 237-64, April.
  18. 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.
  19. Byron Lutz, 2011. "The End of Court-Ordered Desegregation," American Economic Journal: Economic Policy, American Economic Association, vol. 3(2), pages 130-68, May.
  20. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
  21. Hong, Lu & Page, Scott E., 2001. "Problem Solving by Heterogeneous Agents," Journal of Economic Theory, Elsevier, vol. 97(1), pages 123-163, March.
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