Interdependent preferences and segregating equilibria

Antonio Cabrales, Antoni Calvó-Armengol

    Research output: Contribution to journalArticleResearchpeer-review

    10 Citations (Scopus)


    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 different firms, as long as they care somewhat more about the utilities of workers who are "close". This result holds for a broad class and distribution of social preferences. © 2007 Elsevier Inc. All rights reserved.
    Original languageEnglish
    Pages (from-to)99-113
    JournalJournal of Economic Theory
    Issue number1
    Publication statusPublished - 1 Mar 2008


    • Contract theory
    • Envy
    • Mechanism design
    • Skill segregation
    • Social preferences


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