Open AccessPremuneration Values and Investments in Matching Markets
Author(s) -
Mailath George J.,
Postlewaite Andrew,
Samuelson Larry
Publication year - 2017
Publication title -
the economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.683
H-Index - 160
eISSN - 1468-0297
pISSN - 0013-0133
DOI - 10.1111/ecoj.12400
Subject(s) - unobservable , investment (military) , matching (statistics) , microeconomics , economic surplus , economics , pareto principle , work (physics) , pareto efficiency , econometrics , welfare , market economy , statistics , mathematics , political science , mechanical engineering , operations management , politics , law , engineering
We analyse a model in which agents make investments and match into pairs to create a surplus. The agents can reallocate their pretransfer ownership claims on the surplus. Mailath et al . ([Mailath, G.J., 2013]) showed that when investments are unobservable, equilibrium investments are generally inefficient. We work here with a more structured and tractable model to analyse investment inefficiencies. We provide conditions under which investment is inefficiently high or low and when changes in the pretransfer ownership claims on the surplus will be Pareto improving, and examine how the degree of heterogeneity on either side of the market affects investment efficiency.