Unintended Consequences beyond the Becker-Coase theorem

Abstract:

The goal of this presentation is to investigate the consequences of policy intervention in matching markets, such as the labor market, or the marriage market. For this purpose, we introduce an empirical framework for matching models with imperfectly transferable utility and unobserved heterogeneity in tastes. Our framework includes as special cases the classical fully- and non-transferable utility models, as well as many other situations, including taxes on salaries, deadweight losses, and collective models. We characterize equilibria and conditions for identification in our framework. We provide comparative statics and we are able formulate a principle of adverse consequences which goes beyond the Becker-Coase theorem: under imperfect utility transfers, a policy intervention aiming at enhancing the welfare of one side of the market may in fact result in a net welfare loss to that side of the market. As an application, we estimate the magnitude of intra-household transfer frictions using BHPS data and simulate counterfactual policy experiments.