TY  - JOUR
AU  - Fernandez,Raquel
AU  - Gali,Jordi
TI  - To Each According To...? Markets, Tournaments, and the Matching Problem with Borrowing Constraints
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5930
PY  - 1997
Y2  - February 1997
UR  - http://www.nber.org/papers/w5930
L1  - http://www.nber.org/papers/w5930.pdf
N1  - Author contact info:
Raquel Fernández
Department of Economics
New York University
19 West 4th Street, 6th Floor
New York, NY  10012
Tel: 212/998-8908
Fax: 212/995-4186
E-Mail: raquel.fernandez@nyu.edu

Jordi Gali
Centre de Recerca en Economia Internacional (CREI)
Ramon Trias Fargas 25
08005 Barcelona
SPAIN
Tel: 011-34-93-5422754
Fax: 011-34-93-5421860
E-Mail: jgali@crei.cat
AB  - We compare the performance of markets and tournaments as allocative mechanisms in an economy with borrowing constraints. The model consists of a continuum of individuals who differ in their initial wealth and ability level (e.g. students) and that are to be assigned to a continuum of investment opportunities or inputs of different productivity (e.g. schools of different qualities).  With perfect capital markets both mechanisms achieve the efficient allocation, though markets generate higher aggregate consumption because of the waste associated with the production of signals under tournaments.  When borrowing constraints are present, however, tournaments dominate markets in terms of aggregate output and, for sufficiently powerful signaling technologies, also in terms of aggregate consumption.
ER  -