Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/20223
Authors: 
Jansen, Marcel
Year of Publication: 
2004
Series/Report no.: 
IZA Discussion paper series 988
Abstract: 
We consider an economy in which firms need to invest in capital before they can advertise a job, while applicants may have to compete for jobs. Our aim is to investigate how this competition affects the investment decisions of firms. Our first result shows that the economy always generates the right number of jobs. However, with random search firms under-invest in capital due to a hold-up problem. In contrast, if workers can direct their search to 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.
Subjects: 
hold-up
search
efficiency
auctions
JEL: 
C78
D83
D44
Document Type: 
Working Paper

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