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American Economic Review Vol. 104 No. 5 2014

Investment Incentives in Labor Market Matching

John William Hatfield1; Fuhito Kojima2; Scott Duke Kominers3

1 McCombs School of Business, University of Texas at Austin, 2110 Speedway, Austin, TX 78172 (e-mail: ) · 2 Department of Economics, Stanford University, 579 Serra Mall, Stanford, CA 94305 (e-mail: ). · 3 Society of Fellows, Department of Economics, Program for Evolutionary Dynamics, and Center for Research on Computation and Society, Harvard University, and Harvard Business School, One Brattle Square, Suite 6, Cambridge, MA 02138 (e-mail: )

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.

DOI
10.1257/aer.104.5.436
Volume
104
Issue
5
Pages
436-441
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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