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

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.

This is a preview of subscription content, access via your institution.

References

  1. Alvarez, F., Lucas, R.E.: General equilibrium analysis of the eaton-kortum model of international trade. J. Monetary Econ. 54(6), 1726–1768 (2007)

    Google Scholar 

  2. Antràs, P., Garicano, L., Rossi-Hansberg, E.: Offshoring in a knowledge economy. Q. J. Econ. 121(1), 31–77 (2006)

    Google Scholar 

  3. Antras, P., De Gortari, A., Itskhoki, O.: Globalization, inequality and welfare. J. Int. Econ. 108, 387–412 (2017)

    Google Scholar 

  4. Azevedo, E.M., Leshno, J.D.: A supply and demand framework for two-sided matching markets. J. Political Econ. 124(5), 1235–1268 (2016)

    Google Scholar 

  5. Becker, G.S.: A theory of marriage: Part i. J. Political Econ. 81(4), 813–846 (1973)

    Google Scholar 

  6. Becker, G.S.: A theory of marriage: part ii. J. Political Econ. 82(2), 11–26 (1974)

    Google Scholar 

  7. Bernard, A.B., Moxnes, A., Ulltveit-Moe, K.H.: Two-sided heterogeneity and trade. Rev. Econ. Stat. 100(3), 424–439 (2018)

    Google Scholar 

  8. Berry, S., Gandhi, A., Haile, P.: Connected substitutes and invertibility of demand. Econometrica 81(5), 2087–2111 (2013)

    Google Scholar 

  9. Bojilov, R., Galichon, A.: Matching in closed-form: equilibrium, identification, and comparative statics. Econ. Theory 61(4), 587–609 (2016)

    Google Scholar 

  10. Card, D., Heining, J., Kline, P.: Workplace heterogeneity and the rise of west german wage inequality. Q. J. Econ. 128(3), 967–1015 (2013)

    Google Scholar 

  11. Chan, M., Kroft, K., Mourifié, I.: An empirical framework for matching with imperfect competition. URL https://site.stanford.edu/sites/g/files/sbiybj8706/f/5161-firm-employee2019_08_18.pdf (2019)

  12. Chen, L., Choo, E.S.Y., Galichon, A., Weber, S.: Matching function equilibria: Existence, uniqueness and estimation. URL https://ssrn.com/abstract=3387335 (2019). Accessed 5 Aug 2020

  13. Choi, J.: Offshoring, matching, and income inequality. URL http://www.jaerimchoi.com/uploads/9/4/6/2/94627730/offshoring_and_inequality_f.pdf (2020). Accessed 5 Aug 2020

  14. Choo, E., Siow, A.: Who marries whom and why. J. Political Econ. 114(1), 175–201 (2006)

    Google Scholar 

  15. Costinot, A.: An elementary theory of comparative advantage. Econometrica 77(4), 1165–1192 (2009)

    Google Scholar 

  16. Decker, C., Lieb, E.H., McCann, R.J., Stephens, B.K.: Unique equilibria and substitution effects in a stochastic model of the marriage market. J. Econ. Theory 148(2), 778–792 (2013)

    Google Scholar 

  17. Dupuy, A., Weber, S.: Marital patterns and income inequality. URL https://ssrn.com/abstract=3156484 (2019). Accessed 5 Aug 2020

  18. Eaton, J., Kortum, S.: Technology, geography, and trade. Econometrica 70(5), 1741–1779 (2002)

    Google Scholar 

  19. Eaton, J., Jinkins, D., Tybout, J., Xu, D.: Two-sided search in international markets. URL https://ideas.repec.org/p/red/sed016/973.html (2016). Accessed 5 Aug 2020

  20. Eeckhout, J., Kircher, P.: Assortative matching with large firms. Econometrica 86(1), 85–132 (2018)

    Google Scholar 

  21. Gale, D.: Bargaining and competition part i: characterization. Econ. J. Econ. Soc. 54(4), 785–806 (1986a)

  22. Gale, D.: Bargaining and competition part ii: existence. Econ. J. Econ. Soc. 54(4), 807–818 (1986b)

  23. Gale, D.: Limit theorems for markets with sequential bargaining. J. Econ. Theory 43(1), 20–54 (1987)

    Google Scholar 

  24. Galichon, A., Salanié, B.: Cupid’s invisible hand: Social surplus and identification in matching models. Working Paper URL https://ssrn.com/abstract=1804623 (2020). Accessed 5 Aug 2020

  25. Galichon, A., Kominers, S.D., Weber, S.: Costly concessions: an empirical framework for matching with imperfectly transferable utility. J. Political Econ. 127(6), 2875–2925 (2019)

    Google Scholar 

  26. Galle, S., Rodriguez-Clare, A., Yi, M.: Slicing the pie: Quantifying the aggregate and distributional effects of trade. NBER Working Paper No 23737 (2017)

  27. Garicano, L.: Hierarchies and the organization of knowledge in production. J. political Econ. 108(5), 874–904 (2000)

    Google Scholar 

  28. Gayle, G.L., Shephard, A.: Optimal taxation, marriage, home production, and family labor supply. Econometrica 87(1), 291–326 (2019)

    Google Scholar 

  29. Graham, B.S.: Comparative static and computational methods for an empirical one-to-one transferable utility matching model. Adv Econ 31, 153–181 (2013)

    Google Scholar 

  30. Greenwood, J., Guner, N., Kocharkov, G., Santos, C.: Marry your like: assortative mating and income inequality. Am. Econ. Rev. 104(5), 348–353 (2014)

    Google Scholar 

  31. Grossman, G.M.: Heterogeneous workers and international trade. Rev. World Econ. 149(2), 211–245 (2013)

    Google Scholar 

  32. Grossman, G.M., Rossi-Hansberg, E.: Trading tasks: a simple theory of offshoring. Am. Econ. Rev. 98(5), 1978–1997 (2008)

  33. Grossman, G.M., Helpman, E., Kircher, P.: Matching, sorting, and the distributional effects of international trade. J. Political Econ. 125(1), 224–264 (2017)

    Google Scholar 

  34. Heckman, J.J.: What has been learned about labor supply in the past twenty years? Am. Econ. Rev. 83(2), 116–121 (1993)

    Google Scholar 

  35. Jones, C.I., Klenow, P.J.: Beyond gdp? welfare across countries and time. Am. Econ. Rev. 106(9), 2426–57 (2016)

    Google Scholar 

  36. Kojima, F., Pathak, P.A., Roth, A.E.: Matching with couples: stability and incentives in large markets. Q. J. Econ. 128(4), 1585–1632 (2013)

    Google Scholar 

  37. Kremer, M., Maskin, E.: Globalization and inequality. URL http://piketty.pse.ens.fr/fichiers/KremerMaskin2003.pdf (2006). Accessed 5 Aug 2020

  38. Krolikowski, P.M., McCallum, A.H.: Goods-market frictions and international trade. URL https://ssrn.com/abstract=2889761 (2018). Accessed 5 Aug 2020

  39. Lee, S.: Incentive compatibility of large centralized matching markets. Rev. Econ. Stud. 84(1), 444–463 (2016)

    Google Scholar 

  40. Manea, M.: Bargaining in stationary networks. Am. Econ. Rev. 101(5), 2042–2080 (2011)

    Google Scholar 

  41. Mas-Colell, A., Whinston, M.D., Green, J.R.: Microeconomic Theory, vol. 1. Oxford University Press, New York (1995)

    Google Scholar 

  42. McFadden, D.: Conditional logit analysis of qualitative choice behavior. Front. Econ. 105–142 (1974)

  43. Melitz, M.J.: The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 71(6), 1695–1725 (2003)

    Google Scholar 

  44. Menzel, K.: Large matching markets as two-sided demand systems. Econometrica 83(3), 897–941 (2015)

    Google Scholar 

  45. Mortensen, D.T., Pissarides, C.A.: Job creation and job destruction in the theory of unemployment. Rev. Econ. Stud. 61(3), 397–415 (1994)

  46. Rodríguez-Clare, A.: Offshoring in a ricardian world. Am. Econ. J. Macroecon. 2(2), 227–58 (2010)

    Google Scholar 

  47. Rubinstein, A., Wolinsky, A.: Equilibrium in a market with sequential bargaining. Econometrica 53(5), 1133–50 (1985)

    Google Scholar 

  48. Schoen, R.: The harmonic mean as the basis of a realistic two-sex marriage model. Demography 18(2), 201–216 (1981)

    Google Scholar 

  49. Siow, A.: How does the marriage market clear? an empirical framework. Can. J. Econ. Revue Canadienne d’économique 41(4), 1121–1155 (2008)

    Google Scholar 

  50. Siow, A.: Testing becker’s theory of positive assortative matching. J. Labor Econ. 33(2), 409–441 (2015)

    Google Scholar 

  51. Small, K., Rosen, H.: Applied welfare economics with discrete ce models. Econometrica 49(1), 105–30 (1981)

    Google Scholar 

  52. Small, K.A.: A discrete choice model for ordered alternatives. Econometrica 55(2), 409–424 (1987)

  53. Viner, J.: Customs Union Issue. Carnegie Endowment for International Peace, New York (1950)

    Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Jaerim Choi.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

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.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Choi, J. Two-sided heterogeneity, endogenous sharing, and international matching markets. Econ Theory (2020). https://doi.org/10.1007/s00199-020-01297-7

Download citation

Keywords

  • Two-Sided matching
  • Sorting
  • Matching
  • Offshoring
  • Economic integration agreement

JEL Classification

  • F23
  • F66
  • C78
  • D33
  • D50
  • J20
  • J31