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Competitive Investments and Matching: Hedonic Pricing Problems

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  • Seungjin Han

Abstract

The rational expectations equilibrium in this paper endogenizes the worker's characteristic decision and the rm's decisions on wage and job amenity in a large matching economy where the worker's matching benefits may depend in an arbitrary fashion on the worker's characteristic, wage, and job amenity. This paper provides the sufficient condition for the unique rational expectations equilibrium and shows step by step how to derive job amenities, workers' characteristics, and wages in equilibrium. The results suggest that the estimates of compensating wage di erentials from the hedonic model would be biased even if the worker's characteristic and job amenity were fully observable.

Suggested Citation

  • Seungjin Han, 2005. "Competitive Investments and Matching: Hedonic Pricing Problems," Department of Economics Working Papers 2005-08, McMaster University.
    • Handle: RePEc:mcm:deptwp:2005-08
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    File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2005-08.pdf
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    References listed on IDEAS

    as
    1. Duncan, Greg J & Holmlund, Bertil, 1983. "Was Adam Smith Right after All? Another Test of the Theory of Compensating Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 1(4), pages 366-379, October.
    2. Kevin Lang & Sumon Majumdar, 2004. "The Pricing Of Job Characteristics When Markets Do Not Clear: Theory And Policy Implications," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1111-1128, November.
    3. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    4. Hwang, Hae-shin & Mortensen, Dale T & Reed, W Robert, 1998. "Hedonic Wages and Labor Market Search," Journal of Labor Economics, University of Chicago Press, vol. 16(4), pages 815-847, October.
    5. repec:dau:papers:123456789/6443 is not listed on IDEAS
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    More about this item

    Keywords

    investments; matching; hedonic prices;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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