Risk Sharing, Sorting, and Early Contracting

34 Pages Posted: 31 Oct 2000

See all articles by Hao Li

Hao Li

University of Toronto - Department of Economics; Queen's University - Department of Economics

Wing Suen

The University of Hong Kong - School of Economics and Finance

Abstract

In an assignment market with uncertainty regarding productive ability of participants, early contracting can occur as participants balance risk sharing and sorting efficiency. More promising agents may contract early with each other because insurance gains outweigh sorting inefficiency, whereas less promising agents wait. It can also happen in equilibrium that more promising job applicants contract early with less promising firms. Such worker-driven equilibria may arise when applicants are more risk-averse, have greater uncertainty regarding their quality, or face a tighter market and when production exhibits increasing returns to firms' qualities. Early contracting then unambiguously hurts the more promising firms that choose to wait.

Suggested Citation

Li, Hao and Suen, Wing C., Risk Sharing, Sorting, and Early Contracting. Journal of Political Economy, Vol. 108, No. 5, October 2000 . Available at SSRN: https://ssrn.com/abstract=241057 or http://dx.doi.org/10.2139/ssrn.241057

Hao Li (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-5105 (Phone)

Queen's University - Department of Economics ( email )

Dunning Hall
Kingston, Ontario K7L 3N6
Canada
613-533-2275 (Phone)
613-533-6668 (Fax)

HOME PAGE: http://www.econ.queensu.ca/pub/faculty/li/

Wing C. Suen

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong
852 2859 1052 (Phone)
852 2548 1152 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
68
rank
328,344
Abstract Views
683
PlumX Metrics