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Frictional Assignment, Part II: Infinite Horizon and Inequality

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  • Shouyong Shi

Abstract

In this paper I study the assignment between machines of heterogeneous qualities and workers of heterogeneous skills in an infinite-horizon economy with matching frictions. I characterize first the efficient assignment and then the decentralizing market equilibrium. The efficient allocation assigns a unique machine quality and market tightness to each skill. This efficient allocation is saddle-path stable and the assignment along the stable path is constant over time. The efficient assignment is not positively assortative when machine qualities and skills are not sufficiently complementary with each other. Moreover, efficient wage rates are increasing functions of the skill level when the assignment is positively assortative, but not always so when the assignment is not positively assortative. Nevertheless, the social value of workers always increases in the skill level.

Suggested Citation

  • Shouyong Shi, 2002. "Frictional Assignment, Part II: Infinite Horizon and Inequality," Working Papers shouyong-02-01, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:shouyong-02-01
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    References listed on IDEAS

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    Cited by:

    1. Allen Head & Huw Lloyd‐Ellis & Derek Stacey, 2023. "Heterogeneity, Frictional Assignment, And Home‐Ownership," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(3), pages 1265-1308, August.
    2. Jacquet, Nicolas L. & Tan, Serene, 2012. "Wage-vacancy contracts and coordination frictions," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1064-1104.
    3. Moritz Ritter, 2015. "Trade and inequality in a directed search model with firm and worker heterogeneity," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(5), pages 1902-1916, December.
    4. Hongfei Sun & Chenggang Zhou & Allen Head, 2016. "Default, Mortgage Standards, and Housing Liquidity," 2016 Meeting Papers 625, Society for Economic Dynamics.
    5. Pedro Gomis-Porqueras & Benoit Julien & Chengsi Wang, 2012. "Informative Advertising in Directed Search," Discussion Papers 2012-26, School of Economics, The University of New South Wales.
    6. Masters, Adrian, 2011. "Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1017-1031, July.
    7. Head, Allen & Sun, Hongfei & Zhou, Chenggang, 2023. "Indebted sellers, liquidity and mortgage standards," European Economic Review, Elsevier, vol. 151(C).

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    More about this item

    Keywords

    Matching; Frictions; Efficiency; Inequality.;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D60 - Microeconomics - - Welfare Economics - - - General

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