To Each According To...? Markets, Tournaments, and the Matching Problem with Borrowing Constraints / Raquel Fernandez, Jordi Gali.

Format:

Book

Author/Creator:

Fernandez, Raquel.

Contributor:

National Bureau of Economic Research.

Gali, Jordi.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5930.

NBER working paper series no. w5930

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1997.

Summary:

We compare the performance of markets and tournaments as allocative mechanisms in an economy with borrowing constraints. The model consists of a continuum of individuals who differ in their initial wealth and ability level (e.g. students) and that are to be assigned to a continuum of investment opportunities or inputs of different productivity (e.g. schools of different qualities). With perfect capital markets both mechanisms achieve the efficient allocation, though markets generate higher aggregate consumption because of the waste associated with the production of signals under tournaments. When borrowing constraints are present, however, tournaments dominate markets in terms of aggregate output and, for sufficiently powerful signaling technologies, also in terms of aggregate consumption.

Notes:

Print version record

February 1997.