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Referrals

Garicano, Luis and Santos, Tano (2004) Referrals. American Economic Review, 94 (3). pp. 499-525. ISSN 0002-8282

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Abstract

This paper studies the matching of opportunities with talent when costly diagnosis confers an informational advantage to the agent undertaking it. When this agent is underqualified, adverse selection prevents efficient referrals through fixed-price contracts. Spot-market contracts that rely on income sharing can match opportunities with talent but induce a team-production problem which, if severe enough, can prevent the referral of valuable opportunities. Partnership contracts, in which agents agree in advance to the allocation of opportunities and of the revenues they generate, support referrals where the market cannot, but often at the expense of distortions on those opportunities that are not referred.

Item Type: Article
Official URL: http://www.aeaweb.org/aer
Additional Information: © 2009 American Economic Association
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor
Sets: Research centres and groups > Managerial Economics and Strategy Group
Departments > Management
Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 03 Nov 2009 16:24
URL: http://eprints.lse.ac.uk/25575/

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