published as "Job auctions and hold-ups" in: Labour Economics, 2010, 17 (3), 608-619
We consider an economy in which firms need to invest in capital before they can advertise a
job, while applicants may have to compete for jobs. Our aim is to investigate how this
competition affects the investment decisions of firms. Our first result shows that the economy
always generates the right number of jobs. However, with random search firms under-invest
in capital due to a hold-up problem. In contrast, if workers can direct their search to firms with
different capital levels, the equilibrium is efficient. This result contrasts sharply with the
predictions of models with ex post bargaining that never yield an efficient allocation.
Moreover, our results extend the efficiency of auction mechanisms to an environment with
non-contractible investments.
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