This paper develops some general conditions under which complementarities between individual agents imply that efficient sorting of agents is achieved by assortative matching-i.e. requires stratification by ability. The models we study represent generalizations of the marriage problem originally studied in Becker (1973). Our analysis makes four conclusions. First, when agents are organized into equal-sized coalitions, the presence of within-coalition complementarities is sufficient for stratification to be efficient. This identifies the class of problems for which the assortative mating results for the marriage problem may be generalized. Second, if coalition size is itself a choice variable, then stratification may not be efficient in the presence of complementarities. Third, the connection between stratification and efficiency will reemerge if one considers sequences of replications of the economy in which individual coalitions are uniformly bounded in size, or if one places functional form restrictions on the coalition-specific productions functions. Fourth, the presence of any feedbacks from the sorting rule to the distribution of productive inputs again implies that integration in the presence of complementarities may be efficient. Together, these results suggest that the characterization of the cross-sectional evolution of an efficiently sorted economy is likely to be highly complex.
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This paper focuses on implementation issues in environments where it may be costly for the players to send certain messages. We suggest an approach allowing to characterize the set of implementable outcomes, and then apply it to derive optimal mechanisms in a number of environments. The key elements of our approach are the absence of any restrictions on the communication structure in a mechanism and the ability of the principal to screen the agents not only on the basis of their preferences over the outcomes, but also on the basis of their communication abilities.
JEL Nos: C72, D82
Keywords: mechanism design, implementation, communication
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WP2001-23 in pdf.
The holdup problem arises when parties negotiate to divide the surplus generated by their ex ante noncontractable investments. We study this problem in a model which, unlike the stylized static model, allows the parties to continue to invest until they agree on the terms of trade. These possible investment dynamics overturn the conventional wisdom dramatically. First, the holdup problem need not entail underinvestment-type inefficiencies when the parties are sufficiently patient. Second, inefficiencies can arise unambiguously, but the reason for their occurrence differs from the one recognized by the static model. This latter finding sheds new light on the design of contracts and organizations.
Keywords: Investment, Bargaining with an endogenous pie, contribution games.
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480
Brock, William A. and Steven N. Durlauf
GROWTH EMPIRICS AND REALITY
The World Bank Economic Review15, No.
2, pp. 229-272, 2001.
481
Brock, William A. and Steven N. Durlauf
INTERACTIONS-BASED MODELS
Handbook of Econometrics, Volume 5, Chapter 54,
pp. 3297-3380, Edited by J.J. Heckman and E. Leamer, Elsevier Science B.V.,
2001.