Capacity constrained firms in (labor) markets with adverse selection

Achim Wambach and Roman Inderst

Economic Theory, 2002, vol. 19, issue 3, 525-548

Abstract: We discuss a competitive (labor) market where firms face capacity constraints and individuals differ according to their productivity. Firms offer two-dimensional contracts like wage and task level. Then workers choose firms and contracts. Workers might be rationed if the number of applicants exceeds the capacity of the firm. We show that under reasonable assumptions on the distribution of capacity an equilibrium in pure strategies (by the firms) exists. This result stands in contrast to the case of unlimited capacity. The utility level is uniquely determined in equilibrium. No rationing occurs in equilibrium, but it does off the equilibrium path.

Keywords: Adverse selection; Capacity constraints; Labor markets; Competitive equilibrium. (search for similar items in EconPapers)
JEL-codes: C72 C78 D43 D82 (search for similar items in EconPapers)
Date: 2001-12-20
Note: Received: December 29, 1999; revised version: November 30, 2000
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Citations: View citations in EconPapers (3)

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