Plenty of Fish in the Sea: Divorce Choice and the Quality of Singles

In the literature of marriage, divorce choices are usually assumed to not affect the distribution of types in the pool of singles. The scope of the present paper is to overcome this assumption. We analyse divorce choices when separation decision influences the distribution of singles and, thus, their expected quality. We consider a three-period model where heterogeneous individuals may unilaterally experience divorce and return to the marriage market. The choices of individuals are based on the change in the distribution of singles and the cost of waiting and divorcing, taking into consideration the individual’s eligibility in the marriage market. There are two main findings: Firstly, positive assortative matching dissolves with divorce for some intermediate types. Therefore, the endogenous positive assortative matching that usually emerges in models with nontransferable utility is weakened when matches can dissolve. Secondly, the existence of ranges where divorce emerges among individuals with positive assortative matching implies the existence of two disconnected classes of types. If matchings in the first period were to occur between individuals of different classes, such matches would be dissolved later.

Assortative Matching of Exporters and Importers

This paper studies how exporting and importing firms match based on their capability by investigating the change in such exporter-importer matching during trade liberalization. During the recent liberalization on the Mexico-US textile/apparel trade, exporters and importers often switch their main partners as well as change trade volumes. We develop a many-to-many matching model of exporters and importers where partner switching is the principal margin of adjustment, featuring Beckerian positive assortative matching by capability. Trade liberalization achieves efficient global buyer-supplier matching and improves consumer welfare by inducing systematic partner switching. The data confirm the predicted partner switching patterns.

Screening and Signaling Non-Cognitive Skills: Experimental Evidence from Uganda

We study how employers and job-seekers respond to credible information on skills that are difficult to observe, and how this affects matching in the labor market. We experimentally vary whether certificates on workers’ non-cognitive skills are disclosed to both sides of the market during job interviews between young workers and small firms in Uganda. The certificates cause workers to increase their labor market expectations, while high-ability managers revise their assessments of the workers’ skills upwards. The reaction in terms of beliefs leads to an increase in positive assortative matching and to higher earnings for workers, conditional on employment.

Assortative Matching or Exclusionary Hiring? The Impact of Employment and Pay Policies on Racial Wage Differences in Brazil

We measure the effects of firm policies on racial pay differences in Brazil. Non-Whites are less likely to be hired by high-wage firms, explaining about 20 percent of the racial wage gap for both genders. Firm-specific pay premiums for non-Whites are also compressed relative to Whites, contributing another 5 percent for that gap. A counterfactual analysis reveals that about two-thirds of the underrepresentation of non-Whites at higher-wage firms is explained by race-neutral skill-based sorting. Non-skill-based sorting and differential wage setting are largest for college-educated workers, suggesting that the allocative costs of discriminatory hiring and pay policies may be relatively large in Brazil. (JEL J15, J24, J31, J41, J46, J71, O15)

Liquidity Provision and Co-insurance in Bank Syndicates

We study the capacity of the banking system to provide liquidity to the corporate sector in times of stress and how changes in this capacity affect corporate liquidity management. We show that the contractual arrangements among banks in loan syndicates co-insure liquidity risks of credit line drawdowns and generate a network of interbank exposures. We develop a simple model and simulate the liquidity and insurance capacity of the banking network. We find that the liquidity capacity of large banks has significantly increased following the introduction of liquidity regulation, and that the liquidity co-insurance function in loan syndicates is economically important. We also find that borrowers with higher reliance on credit lines in their liquidity management have become more likely to obtain credit lines from syndicates with higher liquidity. The assortative matching on liquidity characteristics has strengthened the role of banks as liquidity providers to the corporate sector.

Incentives, ability and disutility of effort

We generalize the disutility of effort function in the linear-Constant Absolute Risk Aversion (CARA) pure moral hazard model. We assume that agents are heterogeneous in ability. Each agent’s ability is observable and treated as a parameter that indexes the disutility of effort associated with the task performed. In opposition to the literature (the “traditional” scenario), we find a new, “novel” scenario, in which a high-ability agent may be offered a weaker incentive contract than a low-ability one, but works harder. We characterize the conditions for the existence of these two scenarios: formally, the “traditional” (“novel”) scenario occurs if and only if the marginal rate of substitution of the marginal disutility of effort function is increasing (decreasing) in effort when evaluated at the second-best effort. If, further, this condition holds for all parameter values and matching is endogenous, less (more) talented agents work for principals with riskier projects in equilibrium. This implies that the indirect and total effects of risk on incentives are negative under monotone assortative matching.

Fluctuations in the wage gap between vocational and general secondary education: lessons from Portugal

We document and analyse the wage gap between vocational and general secondary education in Portugal between 1994 and 2013. As Portuguese workers have been educated in different school systems, we have to distinguish between birth cohorts. Analysing the wage gaps within cohorts, we find no support for either the human capital prediction of crossing wage profiles or the hypothesis that general graduates increasingly outperform vocational graduates in late career. We discover that the lifecycle wage profiles have shifted over time. We link the pattern of shifting cohort profiles to changes in the school system and in the structure of labour demand. We conclude that assessing the relative value of vocational education requires assessing how the vocational curriculum responds to changes in economic structure and technology. We show that the decline in assortative matching between workers and firms has benefited vocationally educated workers.

Persistent Blessings of Luck: Theory and an Application to Venture Capital

Persistent performance in venture capital is routinely interpreted as evidence for skill. We present a dynamic model of delegated investment with endogenous fund heterogeneity and deal flow, which generates performance persistence without skill differences and predicts mean reversion in long-term performance. Investors working with multiple funds use contingent payments and tiered contracts to induce proper project nurturing and managerial effort. Successful funds receive continuation contracts that tolerate investment failure and encourage innovation, and subsequently finance entrepreneurs through a path-dependent assortative matching favoring incumbents. Recent empirical findings corroborate the models general implications, and the economic mechanisms are robust to short-term contracting, endogenous bargaining, and double moral hazard issues.

Assortative Matching of Tourists and Destinations: Agents or Algorithms?

We propose that assortative matching, a well-established paradigm in other industry sectors and academic disciplines, can underpin the concept of destination matching. This provides a new foundation to integrate research concepts and terminology in destination marketing and destination choice. We argue that the commercial tourism industry already applies destination matching approaches, with three historical phases. Initially, matching of tourists and destinations relied on the tacit expertise of specialist agents. This still applies in specialist subsectors. For generalist travel and accommodation, human agents were partially replaced by online travel agents, OTAs, which are customised algorithms operating only in the travel sector. These still exist, but their share price trends suggest decreasing significance. Currently, automated assortative algorithms use multiple sources of digital data to push appealing offers to potential purchasers, across all retail sectors. Digital marketing strategies for tourism products, enterprises, and destinations are now just one category of generalised product–purchaser matching, using entirely automated algorithms. Researchers do not have access to proprietary algorithms, but we can identify which components they incorporate by analysing their underlying patents. We propose that theories of destination marketing and choice need to reflect these recent and rapid real-world changes via deliberate analysis of destination matching.

Bureaucrat Allocation in the Public Sector: Evidence from the World Bank*

The allocation of bureaucrats across tasks constitutes a pivotal instrument for achieving an organization’s objectives. In this paper, I measure the performance of World Bank bureaucrats by combining the universe of task assignment with an evaluation of task outcome and a hand-collected dataset of bureaucrat CVs. I introduce two novel stylized facts. First, bureaucrat performance correlates with task features and individual characteristics. Second, there exists a negative assortative matching between high-performing bureaucrats and low-performing countries. In the aftermath of natural disasters, which may weaken countries’ performance even further, I observe that low-performing countries receive an additional allocation of high-performing bureaucrats. I discuss various interpretations of these findings.