This thesis studies dynamic markets with endogenous entry, where access hurdles are either an explicit feature of the market or an implicit result of productive externalities.
The first chapter concerns markets of influence, where formal gatekeepers are in charge of selecting and promoting the most promising ideas. I model this as a two-sided matching market between a continuum of experts and a finite number of gatekeepers under sequential directed search. Real-world examples include academic publishing, venture capitalism or political agenda setting. Uniqueness of the resulting equilibrium allows for clear-cut pre- dictions: First, sorting may fail in equilibrium. Second, gatekeepers may have an incentive to add artificial delay. Such red tape occurs in equilibrium – and only at the top – when the impact of two gatekeepers is very different. Third, artificial delay may improve equilib- rium sorting and thereby enhance welfare. Finally, the bottom gatekeeper may endogenously specialize on a quality-irrelevant attribute.
In other applications, there are no formal gatekeepers who regulate market access, yet endogenous access hurdles play a similarly selective role. In this vein of research, the second chapter studies the evolution of labor market composition under mentoring externalities. This chapter is joint work with Aniko Oery. We provide a continuous time, overlapping generations framework to analyze the costs and benefits of affirmative action policies if mentoring complementarities are present. Senior workers reduce the young population’s educational cost through mentoring, and thus act as ‘trailblazers’ for future generations. In such a framework, the main trade off is between using the most able workers and reducing mentorship misallocation. We identify conditions under which persistent market intervention is warranted to improve long-term surplus. We also contrast different channels through which the planner can affect market outcomes, and highlight the benefits of educational fellowships over hiring restrictions.
