Matchmaking Principals: Theory and Evidence from Internal Labor Markets

70 Pages Posted: 19 Apr 2021 Last revised: 27 Jul 2022

See all articles by Bo Cowgill

Bo Cowgill

Columbia University - Columbia Business School

Jonathan Davis

University of Chicago - Harris School of Public Policy; University of Chicago - Harris School of Public Policy

B. Pablo Montagnes

Emory University - Department of Political Science

Patryk Perkowski

Columbia University - Columbia Business School

Date Written: April 5, 2021

Abstract

A principal often needs to match agents together to perform coordinated tasks. However, agents can quit or slack off if they dislike their match. We study two approaches for matching agents, both widely used in practice: Centralized assignment by firm leaders and self-organization through market-like mechanisms. Our framework connects the choice of method to the firm's production technology, the degree of specialization in a firm's workforce, worker/CEO information asymmetry and incentive alignment. We then study these topics using data from a large organization's internal labor market. Using the organization's preferred metric of match quality, firm-dictated matches are 36% more valuable than randomly assigned matches within job categories. By contrast, preference-based matches (using deferred acceptance) are only 3% better than random but are ranked (on average) about 38 percentiles higher by the workforce. A key driver is the degree of assortative matching: The self-organized match is positively assortative, and the firm's preferred match is negatively assortative.

Keywords: internal labor markets, assortative matching, market design

JEL Classification: M5, D47, J4

Suggested Citation

Cowgill, Bo and Davis, Jonathan and Montagnes, B. Pablo and Perkowski, Patryk, Matchmaking Principals: Theory and Evidence from Internal Labor Markets (April 5, 2021). Columbia Business School Working Paper, Available at SSRN: https://ssrn.com/abstract=3793899 or http://dx.doi.org/10.2139/ssrn.3793899

Bo Cowgill (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Jonathan Davis

University of Chicago - Harris School of Public Policy ( email )

1155 E 60th St
Chicago, IL 60637
United States

University of Chicago - Harris School of Public Policy ( email )

1155 E 60th St
Chicago, IL 60637
United States

B. Pablo Montagnes

Emory University - Department of Political Science ( email )

Atlanta, GA 30322
United States

Patryk Perkowski

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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