Investment Incentives in Labor Market Matching

John William Hatfield, Fuhito Kojima and Scott Kominers

American Economic Review, 2014, vol. 104, issue 5, 436-41

Abstract: We provide an illustration of how the design of labor market clearing mechanisms can affect incentives for human capital acquisition. Specifically, we extend the labor market matching model (with discrete transfers) of Kelso and Crawford (1982) to incorporate the possibility that agents may invest in human capital before matching. We show that in this setting, the worker-optimal stable matching mechanism incentivizes workers to make (nearly) efficient human capital investments. En route to our main result, we show that so long as the space of salaries is sufficiently rich, every stable outcome in the Kelso and Crawford (1982) setting is approximately efficient.

JEL-codes: C78 D82 J24 J41 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.5.436
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Citations: View citations in EconPapers (4)

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