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Too much investment? A problem of endogenous outside options
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de Meza, David and Lockwood, Ben (2010) Too much investment? A problem of endogenous outside options. Games and Economic Behavior, Vol.69 (No.2). pp. 503-511. doi:10.1016/j.geb.2009.11.005 ISSN 0899-8256.
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Official URL: http://dx.doi.org/10.1016/j.geb.2009.11.005
Abstract
This paper shows that when agents on both sides of the market are heterogeneous, varying in their costs of investment, ex ante investments by firms and workers (or buyers and sellers more generally) may be too high when followed by stochastic matching and bargaining over quasi-rents. The overinvestment is caused by the fact that low-cost agents, by investing more, can increase the value of their outside option and thus shift rent away from high-cost investors. Numerical simulations show that overinvestment can occur given parameter values calibrated to OECD labour markets.
Item Type: | Journal Article | ||||
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Subjects: | H Social Sciences > HC Economic History and Conditions | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Journal or Publication Title: | Games and Economic Behavior | ||||
Publisher: | Elsevier | ||||
ISSN: | 0899-8256 | ||||
Official Date: | July 2010 | ||||
Dates: |
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Volume: | Vol.69 | ||||
Number: | No.2 | ||||
Number of Pages: | 9 | ||||
Page Range: | pp. 503-511 | ||||
DOI: | 10.1016/j.geb.2009.11.005 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
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