Can Job Competition Prevent Hold-Ups?

49 Pages Posted: 3 Feb 2004

See all articles by Marcel Jansen

Marcel Jansen

Charles III University of Madrid - Department of Economics; IZA Institute of Labor Economics

Date Written: January 2004

Abstract

We consider an economy in which firms need to invest in capital before they can advertise a job, while applicants may have to compete for jobs. Our aim is to investigate how this competition affects the investment decisions of firms. Our first result shows that the economy always generates the right number of jobs. However, with random search firms under-invest in capital due to a hold-up problem. In contrast, if workers can direct their search to firms with different capital levels, the equilibrium is efficient. This result contrasts sharply with the predictions of models with ex post bargaining that never yield an efficient allocation. Moreover, our results extend the efficiency of auction mechanisms to an environment with non-contractible investments.

Keywords: hold-up, search, efficiency, auctions

JEL Classification: C78, D44, D83

Suggested Citation

Jansen, Marcel, Can Job Competition Prevent Hold-Ups? (January 2004). Available at SSRN: https://ssrn.com/abstract=494182 or http://dx.doi.org/10.2139/ssrn.494182

Marcel Jansen (Contact Author)

Charles III University of Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 5740 (Phone)
+34 91 624 9875 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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