Job Auctions and Hold-Ups
Articles
Overview
published in
- LABOUR ECONOMICS Journal
publication date
- June 2010
start page
- 608
end page
- 619
issue
- 3
volume
- 17
Digital Object Identifier (DOI)
International Standard Serial Number (ISSN)
- 0927-5371
Electronic International Standard Serial Number (EISSN)
- 1879-1034
abstract
-
We consider a labor market with search frictions in which firms need to invest in capital before they can post a vacancy. This assumption creates a natural scope for hold-up problems, but the innovation of our
study is that we allow for competition among the applicants who apply
for the same job. In our economy all applicants are paid their actual
marginal product. Nonetheless, with random search there exists a hold-up
problem, leading to underinvestment in capital. On the contrary, if
workers can direct their search towards firms with different capital
levels, the equilibrium is efficient. This result contrasts sharply with
the predictions of models with ex-post bargaining that never yield an
efficient allocation. Moreover, our results extend the efficiency of
auction mechanisms to an environment with non-contractible investments.