Matching Information

Jan Eeckhout

No 835, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: The role of information aggregation within firms has long been recognized. We analyze the optimal allocation of differentially informed agents to different firms when those firms are in competition. Will the well informed match with those who are well informed or will they mix with the less informed? This is important because it provides a rationale for the observed worker composition of firms. We find that in equilibrium, the allocation consists of maximally diversifying the work force within the firm, while minimizing the informational difference between firms. Configuring diversely informed teams is the most informative. The value of information is submodular in types, and this allocation is a generalization of negative assortative matching (NAM) in one-to-one matching to a multi-agent team setting, team-NAM. We analyze the allocation in the presence of endogenous firm size, heterogeneity in productivity, and under correlation of the agents' information.

Date: 2012
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