American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Referrals
American Economic Review
(pp. 499–525)
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.Citation
Garicano, Luis, and Tano Santos. 2004. "Referrals." American Economic Review 94 (3): 499–525. DOI: 10.1257/0002828041464506JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- J41 Labor Contracts
- J44 Professional Labor Markets; Occupational Licensing