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Contracts and on-the-job search

Lookup NU author(s): Dr Roberto Bonilla Trejos

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Abstract

The paper studies a matching model with on-the-job search, transferable utility and heterogeneous agents. Matched agents can set the conditions under which a given match can be dissolved. It is shown that matched agents use sign-off fees to extract all capital gains from trade when a third agent is contacted. In equilibrium, this redistributes wealth towards less able individuals, reduces the likelihood that any given match will be rejected and, given the conditions, it yields efficiency. Although externalities arise when a match is formed and when turnover occurs, the decentralized outcome is efficient when the production function is sub-modular and the difference in abilities is big enough. The results obtained may provide theoretical support for the type of contracts used in some markets, such as sports markets. © 2007 Elsevier B.V. All rights reserved.


Publication metadata

Author(s): Bonilla R

Publication type: Article

Publication status: Published

Journal: Labour Economics

Year: 2008

Volume: 15

Issue: 3

Pages: 512-536

ISSN (print): 0927-5371

ISSN (electronic):

Publisher: Elsevier B.V.

URL: http://dx.doi.org/10.1016/j.labeco.2007.03.002

DOI: 10.1016/j.labeco.2007.03.002


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