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Frictional Assignment, Part II: Infinite Horizon and Inequality

  • Shouyong Shi

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.

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File URL: http://www.economics.utoronto.ca/public/workingPapers/UT-ECIPA-SHOUYONG-02-01.pdf
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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number shouyong-02-01.

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Length: 32 pages
Date of creation: 11 Jul 2002
Date of revision:
Handle: RePEc:tor:tecipa:shouyong-02-01
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  1. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  2. Boyan Jovanovic, 1998. "Vintage Capital and Inequality," NBER Working Papers 6416, National Bureau of Economic Research, Inc.
  3. 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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  7. Ken Burdett & Randall Wright, 1998. "Two-Sided Search with Nontransferable Utility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 220-245, January.
  8. Shouyong Shi, 1998. "Frictional Assignment," Cahiers de recherche CREFE / CREFE Working Papers 74, CREFE, Université du Québec à Montréal.
  9. Michael Peters, 1998. "Limits of Exact Equilibria for Capacity Constrained Sellers with costlySearch," Working Papers peters-98-01, University of Toronto, Department of Economics.
  10. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-49, November.
  12. repec:fth:starer:9816 is not listed on IDEAS
  13. Michael Peters & Aloysius Siow, 2001. "Competing Premarital Investment," Working Papers peters-01-02, University of Toronto, Department of Economics.
  14. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-54, September.
  15. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
  16. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
  17. Montgomery, James D, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 163-79, February.
  18. Christiano, Lawrence J., 1988. "Why does inventory investment fluctuate so much?," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 247-280.
  19. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-79, December.
  20. Kenneth Burdett & Shouyong Shi & Randall Wright, 1998. "Pricing with frictions," Working Papers 98-9, Federal Reserve Bank of Philadelphia.
  21. repec:fth:starer:98-16 is not listed on IDEAS
  22. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
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