Incomplete mechanisms and efficient allocation in labour markets

Douglas Gale

    Research output: Contribution to journalArticlepeer-review

    Abstract

    Efficiency is analyzed in a Walrasian model of labour markets with adverse selection. Workers are distinguished by productivity and preferences; firms are distinguished by productivity and ability to distinguish workers. An equilibrium is defined to be constrained efficient if it cannot be dominated by an incomplete mechanism (IM). The set of equilibria turns out to have an interesting structure. Within the class of strongly monotonic economies, there exists at least one efficient equilibrium. Under slightly stronger conditions, an equilibrium is dominated by an IM only if it can be dominated by another equilibrium, that is, equilibria are Pareto-ranked.

    Original languageEnglish (US)
    Pages (from-to)823-851
    Number of pages29
    JournalReview of Economic Studies
    Volume58
    Issue number5
    DOIs
    StatePublished - Oct 1991

    ASJC Scopus subject areas

    • Economics and Econometrics

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