Social Preferences and Skill Segregation

Universitat Pompeu Fabra Economics and Business Working Paper No. 629

15 Pages Posted: 30 May 2003

See all articles by Antonio Cabrales

Antonio Cabrales

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Antoni Calvo-Armengol

Autonomous University of Barcelona - Department of Economics; IZA Institute of Labor Economics

Date Written: July 1, 2002

Abstract

This paper shows that models where preferences of individuals depend not only on their allocations, but also on the well-being of other persons, can produce both large and testable effects. We study the allocation of workers with heterogeneous productivities to firms. We show that even small deviations from purely 'selfish' preferences leads to widespread workplace skill segregation. That is, workers of different abilities tend to work in different firms, as long as they care somewhat more about the utilities of workers who are 'close'.

Keywords: Contract theory, mechanism design, envy, social preferences, skill segregation

JEL Classification: A13, C72, D64, D80, J41

Suggested Citation

Cabrales, Antonio and Calvo-Armengol, Antoni, Social Preferences and Skill Segregation (July 1, 2002). Universitat Pompeu Fabra Economics and Business Working Paper No. 629. Available at SSRN: https://ssrn.com/abstract=394281 or http://dx.doi.org/10.2139/ssrn.394281

Antonio Cabrales (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34-93) 542 27 65 (Phone)
(34-93) 542 17 46 (Fax)

Antoni Calvo-Armengol

Autonomous University of Barcelona - Department of Economics ( email )

Campus Bellaterra
Barcelona, 08193
Spain
+34 93 581 3068 (Phone)

IZA Institute of Labor Economics

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

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