This paper develops a simple stochastic job matching model and uses it to derive a set of testable restrictions on the conditional probability with which a worker will be observed to change jobs over time. The restrictions describe the manner in which this probability varies with observable characteristics-i-current wage, labour market experience, tenure on current job, and past mobility. Econometric methods are also discussed, and some illustrative calculations provided. 1.

THIS PAPER PRESENTS a simple model of the manner in which person-specific information on productive capabilities is put to use in the firm. The analysis is then employed to examine the impact of improved information quality on equilibrium output, wage rates, and degree of specialization. Much effort has been devoted to studying the process through which personspecific information is accumulated. Burdett-Mortensen [1], MacDonald [8], Prescott-Visscher [10], Hartog [3], and Johnson [5] examine the process of learning about person-specific parameters through investment of resources in activities that yield information. Jovanovic [6] analyses the more specific problem of inferring the quality of a particular job-worker match. Little attention has been given to the question of just how the firm utilizes this kind of information. For information to play an interesting role in production, two things are necessary. One is that workers be heterogeneous in a meaningful sense. That is, in the space of productive characteristics, workers must not all be simply scalar multiples of one another. Second, the firm must have some choice about the kind of activities in which workers are engaged. If either of these conditions fails, the optimal assignment of workers is not a problem.2

between schooling and wages: Schooling raises wages. The standard empirical questions of when are wages raised and by how much have gone unaddressed. The purpose of this paper is to demonstrate that the conventional efficiency units model of human capital accumulation provides answers to these questions. The model deals with investment both in school and on the job. The existence of post-schooling investment implies a path of wages that rises over time. Proposition 1 is that the marginal impact of schooling on the log of wages at each point in time is a constant equal to the interest rate if and only if the human capital production function is locally unit elastic in accumulated stocks of capital. A constant marginal effect on log wages is what is usually assumed in empirical work. Further, extrapolating from a model with no post-schooling investment, the constant effect is expected to equal the interest rate. Proposition 1 indicates that this assumption severely restricts the underlying structure. Propositions 2 and 3 deal with intertemporal variation in the marginal effect of schooling on wages. For example, if the output elasticity of accumulated stocks in the human capital production function falls short of one, the marginal impact of schooling on log wages is shown to decline over time. Further, under a reasonable additional assumption, the marginal impact of schooling on the level of wages rises over time. The propositions arise from the fact that wealth maximization involves maximization of an appropriately discounted flow of rents. Wages at a point in time provide information on the current flow of rents. The relationship between wealth maximization and the implied optimal pattern of flow rents yields the results. The model is laid out in Section 2. Section 3 deals with optimal schooling choice. Propositions 1-3 are presented in Section 4. In Section 5 the results are employed to discuss several stylized facts in the empirical literature on the wage-schooling relation. Proofs of the propositions are straightforward and are therefore presented in an appendix.

The paper provides analysis of an occupation in which there is substantial uncertainty about individual performance, and past performance is correlated with future outcomes. In equilibrium, only the young enter the occupation and only the successful stay on. The young are numerous and earn incomes well below what their current alternative offers; success is rare and rewarded highly. The implied distribution of earnings must have positive skewness.

Heterogeneity on both sides of the labor market implies that the correct matching of individuals to firms is of importance. If there is uncertainty about individual productive characteristics, there are both private and social returns to activities that generate information facilitating the assortative matching process. A model of individual investment in information is presented and analyzed. A key assumption is that there are no individuals who have an absolute advantage in all jobs. Under this assumption, all individuals view more accurate information as beneficial and therefore invest in its production. Comparative statics are derived and the model is compared to human capital and signaling-screening models.

Heterogeneity on both sides of the labor market implies that the correct matching of individuals to firms is of importance. If there is uncertainty about individual productive characteristics, there are both private and social returns to activities that generate information facilitating the assortative matching process. A model of individual investment in information is presented and analyzed. A key assumption is that there are no individuals who have an absolute advantage in all jobs. Under this assumption, all individuals view more accurate information as beneficial and therefore invest in its production. Comparative statics are derived and the model is compared to human capital and signaling-screening models.

A model of free-entry perfectly competitive markets in which firms may produce more than one product is developed. The formulation is very simple and closely parallels the classic single-product model, the goal being to provide a useful, accessible tool for applications-oriented research. Examples of the kind of analysis made possible by the model, and simple extensions of it, are presented.

This paper studies the evolution of a competitive industry in which a fixed number of firms reduce costs by innovating and by imitating their rivals' technologies. As the firms' technologies gradually improve, industry output expands and price falls. Technological leaders tend to rely on innovations to reduce their costs, whereas the laggards rely more on imitation. Imitation causes technology to spread from the leaders to the followers and forces some convergence of technology among firms as the industry matures. This convergence is accompanied by faster growth of smaller firms and a consequent tightening of the distribution of output over firms. Since imitation is a kind of spillover of technology, equilibrium is likely to involve insufficient innovative and imitative effort relative to a social optimum.

Firm numbers first rise, then later fall, as an industry evolves. This nonmonotonicity is explained using a competitive model in which innovation opportunities fuel entry and relative failure to innovate prompts exit; equilibrium time paths for price and quantity also share features of the data. The model is estimated using data from the U.S. automobile tire industry, a particularly dramatic example of the nonmonotonicity in firm numbers.