Publication: Interdependent preferences and segregating equilibria
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2007-03
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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. This result holds for a broad class and
distribution of social preferences. 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”.
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Contract theory, Mechanism design, Envy, Social preferences, Skill segregation