Assortative Matching Research Articles

Are Inventors or Firms the Engines of Innovation?

In this study, we empirically assess the contributions of inventors and firms for innovation using a 37-year panel of U.S. patenting activity. We estimate that inventors’ human capital is 5–10 times more important than firm capabilities for explaining the variance in inventor output. We then examine matching between inventors and firms and find highly talented inventors are attracted to firms that (i) have weak firm-specific invention capabilities and (ii) employ other talented inventors. A theoretical model that incorporates worker preferences for inventive output rationalizes our empirical findings of negative assortative matching between inventors and firms and positive assortative matching among inventors. This paper was accepted by Ashish Arora, entrepreneurship and innovation.

Firms and Skills

We document a significant increase in the sorting of workers by cognitive and non-cognitive skills across Swedish firms between 1986 and 2008. The weight of the evidence suggests that the increase in sorting is due to stronger complementarities between worker skills and technology. In particular, a large fraction of the increase can be explained by the expansion of the ICT sector and a reallocation of engineers across firms. We also find evidence of increasing assortative matching, in the sense that workers who are particularly skilled in their respective educational groups are more likely to work in the same firms. Changes in sorting pattens and skill gradients can account for a about half of their increase in between-firm dispersion.

Homo Moralis and Regular Altruists – Preference Evolution for When They Disagree

Alger and Weibull (2013) present a model for the evolution of preferences under incomplete information and assortative matching. Their main result is that Homo Moralis – who maximizes a convex combination of her narrow self-interest and “the right thing to do” – is evolutionarily stable, if it assigns a weight on the right thing to do that is equal to the assortment parameter. We give a counterexample against their central result, and a way to repair it. We also show that the result ceases to hold if we allow for mixed equilibria or coordination on asymmetric equilibria. Allowing for mixed equilibria, we show that if there is a stable preference, it will be behaviorally equivalent to a regular altruist that puts a positive weight on the payoff of the other that is equal to the assortment parameter. We also consider the cross-species empirical evidence.

New evidence on son preference among immigrant households in the United States

Abstract This paper provides new evidence on the acquisition and persistence of child gender preference among immigrant populations in the United States using Census and American Community Survey data. We first confirm the existing evidence of son preference among immigrant populations from South East Asia that was documented across multiple studies and samples. We then demonstrate several new empirical findings. First, Japanese immigrants exhibit daughter preference. Second, assortative matching between immigrant parents is associated with stronger gender preferences. Third, comparing male and female migrants who marry natives provides suggestive evidence that paternal preferences could be more to blame for son preference than maternal. Fourth, child gender preferences are strongest for migrants who arrive after childhood but do not appear to diminish with the duration of residence in the United States. Finally, while higher-order generations exhibit weaker son preference, there is a high degree of heterogeneity across groups. Most of the second- and higher-order generation immigrants assimilate more rapidly to US norms except Indian immigrant populations, which exhibit strong son preference among higher-order generations.

Intermediaries and product quality in used car markets

AbstractWe present empirical evidence supporting that used cars sold by dealers have higher quality: (i) dealer transaction prices are higher than unmediated market prices, and this dealer premium increases in the age of the car as a ratio and is hump‐shaped in dollar value, and (ii) used cars purchased from dealers are less likely to be resold. In a model, we show that these empirical facts can be rationalized either when dealers alleviate information asymmetry, or when dealers facilitate assortative matching. The model predictions allow us to distinguish these two theories in the data, and we find evidence for both.

Start-Up Competences and Early Stage Hiring: A Contingency Perspective

Early employment growth can be a stepping-stone for start-up scaling. Yet, we have little insights into the factors that can enable early stage hiring. Building on competence-based theory, we posit that initial competences, namely those assembled via founders’ start-up experience and external shareholders, can help start-ups overcome early staffing challenges. However, through a contingency perspective, we demonstrate that a start-up’s ability to leverage those initial competences and hire soon after entry is contingent on its strategic orientation towards innovation. Both internal and external competences are likely to be underutilized in less R&D intensive start-ups lacking innovation-based growth aspirations. We find general support for our hypotheses with a rich dataset of Italian innovative start-ups, and additionally show that early staff recruitment is largely characterized by (positive) assortative matching dynamics in the human capital attributes of the demand and supply sides.

Supply chain dynamics with assortative matching

This article studies the evolutionarily stable equilibria of one-manufacturer and one-retailer supply chains. Each agent chooses to be either shareholder-oriented or stakeholder-oriented based on its own preference, then gives its pricing decision. Supply chains are formed by two types of matching processes: uniform random matching and assortative matching. Results indicate that, under uniform random matching, only one evolutionarily stable equilibrium exists, namely, the strict Nash equilibrium where both manufacturer and retailer choose shareholder strategy. Under assortative matching, the strict Nash equilibrium may not be evolutionarily stable under sign-compatible dynamics. The equilibrium where both manufacturer and retailer choose stakeholder strategy may be evolutionarily stable for certain values of the indices of assortativity. Furthermore, an interior equilibrium is observed with assortative matching, and the boundary equilibrium may be an evolutionarily stable equilibrium in some special cases.

Highly flexible neighborhood promotes efficient coordination: Experimental evidence

Abstract We experimentally investigate group effort-coordination games where individuals are occasionally offered opportunities to alter their interaction neighborhood (with whom they want to connect and interact). We vary the neighborhood flexibility, or the rate with which such opportunities arise. We find that increasing neighborhood flexibility significantly improves coordination efficiency when players start with a decentralized circle-shaped network, but the improvement is limited if they start with a highly centralized star-shaped network. Neighborhood flexibility improves coordination through facilitating assortative matching among high-effort players. In star-shaped networks, neighborhood flexibility has a side-effect of decentralizing the networks which weakens the central player’s ability in facilitating coordination hence partially offsets the benefit from assortative matching.

Centralized assignment mechanisms and assortative matching: Evidence from Chinese universities

Student-college academic mismatch has been documented in the literature. This study takes advantage of a unique large-scale policy experiment in China in 2013 in which a variant of the Boston mechanism was replaced with a variant of the deferred acceptance mechanism and compares the quality of assortative matching between student test scores and college quality under the two mechanisms. College admission in China is performed via a centralized matching process based only on one national standardized test. Using administrative data from one province, I find that the restricted deferred acceptance reduces the number of over-matched students (low-scoring students attending high-quality colleges) by 7.1 percentage points (or 51.9%). However, on average, it increases the number of under-matched students (high-scoring students attending low-quality colleges) by 2.7 percentage points (or 12.8%) for those at the top tier based on test score distribution. Moreover, the effects are mainly experienced by students at the bottom 50% of the top tier. The increase in under-matched shares fades over time for men, but persists for women.

Assortative matching group formations and group representatives in a repeated public goods game

ABSTRACT We study the role of group representatives cooperating under different assortative matching groups in a repeated public goods game. We find that the requested contribution proposals are an essential motivation factor for the individuals’ contribution. At the same time, cooperation is more likely to be strengthened by the role of the group representatives.

Shedding light on maternal education and child health in developing countries

Abstract This paper investigates the intergenerational effects of maternal education on child health in 68 developing countries across five continents over nearly three decades. Exploiting the between-sisters variation in the educational attainment of the mothers, we find that mother’s education is positively associated with child health measured by the three most commonly used indices, namely height-for-age, weight-for-height, and weight-for-age. Our mechanism analyses further show that these favorable effects could be, at least in part, attributed to fertility behavior, assortative matching, health care utilization, access to information, health knowledge, and labor market outcome. Given the long-lasting impacts of early-life health over the life cycle, our findings underline the importance of maternal education in improving economic and social conditions in developing countries.

Intergenerational Mobility and Unequal School Opportunity

Abstract We analyse the impact of unequal school opportunity on intergenerational income mobility and human capital accumulation. Building upon the classical Becker–Tomes–Solon framework, we use a regime-switch model allowing for differences in income transmission across groups. We find that unequal school opportunity raises average human capital because of assortative matching. However, because income dispersion tends to be higher at the top, in most cases unequal school opportunity decreases intergenerational mobility. Calibrating the model to the USA, simulations suggest that school equalisation and desegregation policies have positive effects on mobility at relatively small efficiency costs.

Assortative Matching and Reputation in the Market for First Issues

Using a tractable structural model of the matching equilibrium between underwriters and equity-issuing firms, we study the determinants of value in underwriter–firm relationships. Our estimates imply that high underwriter prestige is associated with 5.3%–14.1% greater equilibrium surplus. According to the structural model, high prestige exhibits a significant certification effect throughout the sample (1985–2010), but there is also a countervailing effect of underwriter prestige that reflects subscriber preferences for more underpricing. Consistent with trading off profits from issuers and subscribers, high-prestige underwriters underprice more in hot markets when rents to catering to subscribers are greatest. This paper was accepted by Gustavo Manso, finance.

Implementation of assortative matching under incomplete information

This paper provides a unifying framework for matching markets with incomplete information in which the positive assortative match is always efficient. I construct a Vickrey-Clarke-Groves-like mechanism which implements the positive assortative match as an ex post Nash equilibrium. It achieves this result by using a payment rule that distinguishes between an agent deprived of any match and an agent who merely receives a reduced match value. The constructed mechanism recognizes only opportunity costs arising from the former, and not the latter, effect. I also generalize the stronger condition of envy freeness to these incomplete information environments and show that the constructed equilibrium is envy free.

Weakening transferable utility: The case of non-intersecting Pareto curves

Transferable utility (TU) is a widely used assumption in economics. In this paper, we weaken the TU property to a setting where distinct Pareto frontiers have empty intersections. We call this the no-intersection property (NIP). We show that the NIP is strictly weaker than TU, but still allows to derive several desirable properties. We discuss the NIP in relation to several models where TU has turned out to be a key assumption: models of assortative matching, principal-agent models with asymmetric information, the Coase Independence Property and Becker's Rotten Kid Theorem.

Inefficient sorting under output sharing

I study sorting in a frictional market. Asset owners post their terms, then workers direct their search. When the owners switch from prices to shares, the competition between workers is handicapped. The unique equilibrium features inefficient positive assortative matching. The queue lengths are distorted, even though the Hosios efficiency condition holds for every pair of types. For any distribution of types, all workers pair up with better assets. The best workers suffer while the weakest workers gain; the opposite occurs on the asset side. Competition drives the asset owners to post flatter contracts. It leads to constrained efficiency whenever prices are feasible. Otherwise, handicapped competition results in inefficient sorting.

Assortative matching with network spillovers

This paper investigates endogenous network formation by heterogeneous agents. The agents' types determine the value of linking and we incorporate spillovers as utility from indirect connections. We provide sufficient conditions for a class of networks with sorting to be stable for low to moderate spillovers; with only two types these networks are the unique pairwise stable ones. We also show that this sorting is suboptimal for moderate to high spillovers despite otherwise obeying the conditions for sorting in Becker (1973). This shows that in our sorted networks a tension between stability and efficiency is present. We analyze a policy tool to mitigate suboptimal sorting.

Changes in Assortative Matching and Inequality in Income: Evidence for the UK*

AbstractThe extent to which like‐with‐like marry is important for inequality as well as for the outcomes of children who result from the union. In this paper, we present evidence on changes in assortative mating and its implications for household inequality in the UK. Our approach contrasts with others in the literature in that it is consistent with an underlying model of the marriage market. We argue that a key advantage of this approach is that it creates a direct connection between changes in assortativeness in marriage and changes in the value of marriage for the various possible matches by education group. Our empirical results do not show a clear direction of change in assortativeness in the UK between the birth cohorts of 1945–54 and 1965–74. We find that changes in assortativeness pushed income inequality up slightly, but that the strong changes in education attainment across the two cohorts contributed to scale down inequality.

Socially responsible corporate customers

Corporate customers are an important stakeholder in global supply chains. We employ several unique international databases to test whether socially responsible corporate customers can infuse similar socially responsible business behavior in suppliers. Our findings suggest a unilateral effect on corporate social responsibility (CSR) only from customers to suppliers, an evidence further supported by exogenous variation in customers’ close-call CSR proposals and by product scandals. Customers exert influence on suppliers’ CSR through positive assortative matching and their decision-making process. Enhanced collaborative CSR efforts help improve operational efficiency and firm valuation of both customers and suppliers but increase only the customers’ future sales growth.

Assortative matching and social interaction: A field experiment on adolescents’ risky choices

We propose a novel empirical strategy to distinguish two sources of peer effects in risky choices: (i) assortative matching in the formation of the peer relationship, and (ii) social interaction effects arising in the choice situation. We combine network information on existing peer relationships with controlled randomised exposure to social interaction conditions. We apply this strategy in a field experiment on risky decision making among adolescents between ages 13 and 15. School classes were randomly allocated to two social interaction treatments. Students were allowed to discuss their choices with a natural peer – either a friend or a randomly selected classmate – before individually making choices in an incentivised lottery task. In the control group, adolescents made choices without being able to discuss them with a peer. In a dyadic analysis, we find that friends and classmates are matched on socio-demographic characteristics but are not assortatively matched on risk preferences. In contrast, social interaction strongly increases the similarity of teenagers’ risky choices. A large fraction of peers align their choices perfectly.