We suggest a parsimonious dynamic agency model in which workers have status concerns. A firm is a promotion hierarchy in which a worker’s status depends on past performance. We investigate the optimality of two types of promotion hierarchies: (i) internal labor markets, in which agents have a...

This paper examines how schools choose class size and how households sort in response to those choices. Focusing on the highly liberalized Chilean education market, we develop a model in which schools are heterogeneous in an underlying productivity parameter, class size is a component of school...

We study the implication of the standard principal-agent theory developed by Holmstrom and Milgrom (1987) on the endogenous matching of CEO and firm. We show that a CEO with low disutility of effort, low risk aversion, or both should manage a safer firm in the matching equilibrium, and that a...

Prizes are often awarded to encourage research on products deemed of vital importance. We present a mechanism which can, in situations where the innovators are better informed about the difficulty of the research, tailor perfectly the expected reward to the expected research costs. The idea is...

Using the Australian Bureau of Statistics’ Survey of Income and Household Costs, this paper explores the effect of changing assortative mating patterns on income inequality. Evidence from theoretical and mathematically calibrated models suggest that assortative mating has distributional...

In market economies identical workers appear to receive very different wages, violating the ‘law of one price’ of Walrasian markets. It is argued in this paper that in the absence of a Walrasian auctioneer to coordinate trade: (i) wage dispersion among identical workers is very often an...