Job Auctions and Hold-Ups Articles uri icon

authors

  • JANSEN, MARCEL

publication date

  • June 2010

start page

  • 608

end page

  • 619

issue

  • 3

volume

  • 17

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.