Frictional Assignment. I. Efficiency

Research output: Contribution to journalArticle

62 Citations (Scopus)

Abstract

This paper examines the two-sided matching problem where the agents on each side of the market are heterogeneous and the matching process is time consuming. This is cast in a labor market setting where workers of different skills match with different machine qualities. I characterize the efficient allocation and then show that it can be decentralized by a market mechanism. The efficient assignment is not always positively assortative, despite the fact that machine qualities and skills are complementary in production. To decentralize the efficient allocation, the market mechanism requires the firms to post wages and commit each machine quality to a particular skill. Implications on wage inequality are briefly examined. Journal of Economic Literature Classification Numbers: J31, E24, J64.

Original languageEnglish (US)
Pages (from-to)232-260
Number of pages29
JournalJournal of Economic Theory
Volume98
Issue number2
DOIs
StatePublished - Jun 1 2001

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Assignment
Market mechanism
Efficient allocation
Two-sided matching
Labour market
Workers
Wages
Wage inequality
Economics
Matching problem

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

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Frictional Assignment. I. Efficiency. / Shi, Shouyong.

In: Journal of Economic Theory, Vol. 98, No. 2, 01.06.2001, p. 232-260.

Research output: Contribution to journalArticle

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