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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. Roland G. Fryer, Jr. & Glenn C. Loury, 2005. "Affirmative Action and Its Mythology," NBER Working Papers 11464, National Bureau of Economic Research, Inc.
  2. 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.
  3. Simon Board, 2007. "Monopolistic Group Design with Peer Effects," Working Papers tecipa-276, University of Toronto, Department of Economics.
  4. Michael Peters & Aloysius Siow, 2002. "Competing Premarital Investments," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 592-608, June.
  5. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers 97-2a, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-819, November.
  7. Durlauf, Steven N, 1996. " A Theory of Persistent Income Inequality," Journal of Economic Growth, Springer, vol. 1(1), pages 75-93, March.
  8. Raquel Fernandez & Richard Rogerson, 2000. "Sorting and Long-Run Inequality," NBER Working Papers 7508, National Bureau of Economic Research, Inc.
  9. Kevin Roberts & Leonardo Felli, 2000. "Does Competition Solve the Hold-up Problem?," Economics Series Working Papers 2000-W11, University of Oxford, Department of Economics.
  10. Patrick Legros & Andrew F. Newman, 2003. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Economics Working Papers 0030, Institute for Advanced Study, School of Social Science.
  11. Chris Bidner, 2010. "A Spillover-Based Theory of Credentialism," Discussion Papers 2010-10, School of Economics, The University of New South Wales.
  12. Thomas Gall & Patrick Legros & Andrew Newman, 2006. "The timing of education," ULB Institutional Repository 2013/7026, ULB -- Universite Libre de Bruxelles.
  13. 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.
  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.
  15. repec:att:wimass:9613 is not listed on IDEAS
  16. Claudia Goldin & Lawrence F. Katz & Ilyana Kuziemko, 2006. "The Homecoming of American College Women: The Reversal of the College Gender Gap," NBER Working Papers 12139, National Bureau of Economic Research, Inc.
  17. Hong, Lu & Page, Scott E., 2001. "Problem Solving by Heterogeneous Agents," Journal of Economic Theory, Elsevier, vol. 97(1), pages 123-163, March.
  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.
  19. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
  20. 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.
  21. 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..
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