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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. Chris Bidner, 2010. "A Spillover-Based Theory of Credentialism," Discussion Papers 2010-10, School of Economics, The University of New South Wales.
  3. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
  4. Michael Peters & Aloysius Siow, 2001. "Competing Premarital Investment," Working Papers peters-01-02, University of Toronto, Department of Economics.
  5. Leonardo Felli & Kevin Roberts, 2000. "Does Competition Solve the Hold-Up Problem?," CESifo Working Paper Series 317, CESifo Group Munich.
  6. Byron Lutz, 2011. "The End of Court-Ordered Desegregation," American Economic Journal: Economic Policy, American Economic Association, vol. 3(2), pages 130-68, May.
  7. Board, Simon, 2009. "Monopolistic group design with peer effects," Theoretical Economics, Econometric Society, vol. 4(1), March.
  8. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
  9. 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..
  10. 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.
  11. 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.
  12. Fernández, Raquel & Rogerson, Richard, 2000. "Sorting and Long-Run Inequality," CEPR Discussion Papers 2352, C.E.P.R. Discussion Papers.
  13. 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..
  14. Thomas Gall & Patrick Legros & Andrew Newman, 2006. "The timing of education," ULB Institutional Repository 2013/7026, ULB -- Universite Libre de Bruxelles.
  15. 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.
  16. Bengt Holmstrom & Roger B. Myerson, 1981. "Efficient and Durable Decision Rules with Incomplete Information," Discussion Papers 495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  17. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
  18. repec:att:wimass:9613 is not listed on IDEAS
  19. 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.
  20. Hong, Lu & Page, Scott E., 2001. "Problem Solving by Heterogeneous Agents," Journal of Economic Theory, Elsevier, vol. 97(1), pages 123-163, March.
  21. 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.
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