Paper #629

Title:

Social preferences and skill segregation

Authors:

Antonio Cabrales and Antoni Calvó

Date:

July 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 di�erent 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 codes:

A13, C72, D64, D80, J41

Area of Research:

Behavioral and Experimental Economics / Business Economics and Industrial Organization / Microeconomics

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