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Two-sided heterogeneity, endogenous sharing, and international matching markets

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Abstract

This paper develops a multi-country, multi-sector, and multi-factor model of two-sided matching between heterogeneous workers and entrepreneurs in which agents in different countries can form cross-country teams. Sorting, matching, and sharing problems are all considered in a unified framework. Equilibrium is characterized by endogenous sharing rules, which break away from competitive marginal productivity theories of factor returns. I illustrate that a bilateral economic integration agreement can affect the welfare of agents in an unrelated third country, and that a reduction in the cost of sector-specific matching can increase welfare for all agents without conflicts of interest.

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  1. Department of Economics, University of Hawaii at Manoa, Saunders Hall 542, 2424 Maile Way, Honolulu, HI, 96822, USA

    Jaerim Choi

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Correspondence to Jaerim Choi.

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I am grateful to Rob Feenstra for his helpful advice and guidance at the early stage. This research was inspired by conversation with him at UC Davis. Special thanks also go to the Co-Editor and three anonymous reviewers for their constructive feedback that immensely improved the quality of the paper. I sincerely appreciate Alan Taylor, Deborah Swenson, and the late Martine Quinzii for their fruitful comments. I also thank Nikhil Agarwal, Yi-Fan Chen, Carl Davidson, Yukihiko Funaki, Athanasios Geromichalos, Eun Jeong Heo, Yu-Wei Hsieh, Jota Ishikawa, Biung-Ghi Ju, Ruben Juarez, SangMok Lee, Konrad Menzel, Liang Wang, Mingzhi Xu, and participants at the UC Davis Macro/International Brown Bag, the Fall 2018 Midwest International Trade Conference, the Australian Trade Workshop 2019, and the University of Hawaii at Manoa for helpful discussions.

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Choi, J. Two-sided heterogeneity, endogenous sharing, and international matching markets. Econ Theory 72, 473–509 (2021). https://doi.org/10.1007/s00199-020-01297-7

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