In a growth model, rent-grabbing and free riding can give rise to inequality in productivity and firm size. Inequality among firms affects a firm's incentive to free ride or to grab rents, and, hence, the incentive to invest in research and training We follow Lucas and Prescott (1971) and...

We argue that using wage data alone, it is virtually impossible to identify whether Assortative Matching between worker and firm types is positive or negative. In standard competitive matching models the wages are determined by the marginal contribution of a worker, and the marginal contribution...

The rise in world trade since 1970 has raised international mobility of labor services. We study the effect of such a globalization of the world's labor markets. We find that when people can choose between wage work and managerial work, the output gains are U-shaped: A worldwide labor market...

The Two-Sided Perfect Matching model is generalised to an Imperfect Matching model with search frictions. A search model is proposed which is characterised by bilateral search and vertical heterogeneity and allows for a generally specified utility function. The fundamental result is that with...

An incentives based theory of policing is developed which can explain the phenomenon of random "crackdowns," i.e., intermittent periods of high interdiction/ surveillance. For a variety of police objective functions, random crackdowns can be part of the optimal monitoring strategy. We...

We investigate the role of search frictions in markets with price competition and how it leads to sorting of heterogeneous agents. There are two aspects of value creation: the match value when two agents actually trade and the probability of trading governed by the search technology. We show...

We propose a simple bargaining procedure, the equilibrium of which converges to the Walrasian allocation as the agents become increasingly patient. We thus establish that the competitive outcome obtains even if agents have market power and are not price-takers. Moreover, where in other...

A key question concerning social norms is whether norms that are bad for its members can survive. This paper argues that when identical workers have the outside option to join a competing firm with a different norm, good norms can exist only in the presence of bad norms. With non contractible...