To Each According To...? Markets, Tournaments, and the Matching Problem with Borrowing Constraints

Raquel Fernandez and Jordi Galí

No 1627, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We compare the performance of markets and tournaments as allocative mechanisms in an economy with borrowing constraints. The model consists of a continuum of individuals who differ in their initial wealth and ability level (e.g. students) and that are to be assigned to a continuum of investment opportunities or inputs of different productivity (e.g. schools of different qualities). With perfect capital markets both mechanisms achieve the efficient allocation, though markets generate higher aggregate consumption because of the waste associated with the production of signals under tournaments. When borrowing constraints are present, however, tournaments dominate markets in terms of aggregate output and, for sufficiently powerful signalling technologies, also in terms of aggregate consumption.

Keywords: Borrowing Constraints; Markets; Matching; Tournaments (search for similar items in EconPapers)
JEL-codes: D52 E44 J41 (search for similar items in EconPapers)
Date: 1997-05
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1627 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: To Each According to...?: Markets, Tournaments, and The Matching Problem with Borrowing Constraints (1997)
Working Paper: To Each According To...? Markets, Tournaments, and the Matching Problem with Borrowing Constraints (1997)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:1627

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1627

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().