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Wage Formation in a Centralized Matching Market

Ulrich Kamecke
International Economic Review
Vol. 39, No. 1 (Feb., 1998), pp. 33-53
DOI: 10.2307/2527229
Stable URL: http://www.jstor.org/stable/2527229
Page Count: 21
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Wage Formation in a Centralized Matching Market
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Abstract

It is natural to ask why the market for interns in the U.S.A. has to be cleared with a centralized matching procedure (the NRMP) and how this rationing procedure affects equilibrium wages. This paper presents a model in which a market failure is caused by insufficiently differentiated wages. The NRMP solves the problem, but it enables the hospitals to extract more surplus from their interns than they could in an ideal competitive equilibrium. It is demonstrated that this distortion causes welfare losses if the hospitals can substitute between physicians and interns.

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