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Risk Sharing, Sorting, and Early Contracting

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Author Info
Hao Li
Wing Suen

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Abstract

In an assignment market with uncertainty regarding productive ability of participants, early contracting can occur as participants balance risk sharing and sorting efficiency. More promising agents may contract early with each other because insurance gains outweigh sorting inefficiency, whereas less promising agents wait. It can also happen in equilibrium that more promising job applicants contract early with less promising firms. Such worker-driven equilibria may arise when applicants are more risk-averse, have greater uncertainty regarding their quality, or face a tighter market and when production exhibits increasing returns to firms' qualities. Early contracting then unambiguously hurts the more promising firms that choose to wait.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 108 (2000)
Issue (Month): 5 (October)
Pages: 1058-1087
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Handle: RePEc:ucp:jpolec:v:108:y:2000:i:5:p:1058-1087

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  2. Hanna W. Halaburda, 2008. "Unravelling in Two-Sided Matching Markets and Similarity of Preferences," Harvard Business School Working Papers 09-068, Harvard Business School. [Downloadable!]
  3. C. Nicholas McKinney & Muriel Niederle & Alvin E. Roth, 2003. "The collapse of a medical clearinghouse (and why such failures are rare)," NBER Working Papers 9467, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Alvin Roth, 2008. "Deferred acceptance algorithms: history, theory, practice, and open questions," International Journal of Game Theory, Springer, vol. 36(3), pages 537-569, March. [Downloadable!] (restricted)
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  5. Muriel Niederle & Alvin E. Roth, 2007. "The Effects of a Centralized Clearinghouse on Job Placement, Wages, and Hiring Practices," NBER Working Papers 13529, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Ernan Haruvy & Alvin E. Roth & M. Utku Unver, 2004. "The Dynamics of Law Clerk Matching: An Experimental and Computational Investigation of Proposals for Reform of the Market," Experimental 0404001, EconWPA. [Downloadable!]
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  7. Damiano, Ettore & Li, Hao & Suen, Wing, 2004. "Unraveling of Dynamic Sorting," Micro Theory Working Papers damiano-04-08-11-03-02-02, Microeconomics.ca Website, revised 11 Aug 2004. [Downloadable!]
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  8. Ostrovsky, Michael & Schwarz, Michael, 2007. "Information Disclosure and Unraveling in Matching Markets," Research Papers 1965, Stanford University, Graduate School of Business. [Downloadable!]
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  9. Frederick Chen, 2003. "Unraveling in a dynamic matching market with Nash bargaining," Economics Bulletin, Economics Bulletin, vol. 3(17), pages 1-6. [Downloadable!]
  10. Guillaume Frechette & Alvin E. Roth & M. Utku Ünver, 2004. "Unraveling Yields Inefficient Matchings: Evidence from Post- Season College Football Bowls," Microeconomics 0404001, EconWPA, revised 24 Sep 2004. [Downloadable!]
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  11. C. Nicholas McKinney & Muriel Niederle & Alvin E. Roth, 2005. "The Collapse of a Medical Labor Clearinghouse (and Why Such Failures Are Rare)," American Economic Review, American Economic Association, vol. 95(3), pages 878-889, June. [Downloadable!]
  12. Muriel Niederle & Alvin E Roth, 2003. "Unraveling reduces the scope of an entry level labor market: Gastroenterology with and without a centralized match," Levine's Bibliography 506439000000000428, UCLA Department of Economics. [Downloadable!]
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  13. Muriel Niederle & Alvin E. Roth & M. Utku Ãœnver, 2009. "Unraveling Results from Comparable Demand and Supply: An Experimental Investigation," NBER Working Papers 15006, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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