American Economic Review: Vol. 97 No. 5 (December 2007)
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Competitive Wages in a Match with Ordered Contracts
Niederle, Muriel. 2007. "Competitive Wages in a Match with Ordered Contracts." American Economic Review, 97(5): 1957-1969.
Following the recently dismissed antitrust lawsuit against the National Residency Matching Program (NRMP), Jeremy Bulow and Jonathan Levin (2006) propose a simple matching model in which firms set impersonal salaries simultaneously before matching with workers, which leads to lower aggregate wages than any competitive outcome. I model a feature of the NRMP, ordered contracts, that allows firms to set several contracts while determining the order in which they try to fill them, which has different properties than standard models with multiple contracts. Furthermore, the low wages of Bulow and Levin are no longer an equilibrium, but competitive wages are. (JEL D86, J31, J41)
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