Learning About the Nature of Production from Equilibrium Assignment Patterns.Working Paper

This paper exploits empirically a key insight from Lucas (1977) and Rosen (1982): that the organization of production and the distribution of earnings across individuals are jointly determined by the equilib-rium assignment of individuals to \u85rms and hierarchical positions. We study how di¤erent classes of production functions generate alterna-tive equilibrium assignments. We then use con\u85dential Census data on U.S. law o ¢ ces to investigate the form that the production function in such industry should take to rationalize earnings patterns in legal ser-vices. We argue that production in such a context is characterized by asymmetric sensitivity to the skill of agents in di¤erent organizational positions, complementarity between managersand workersskill, and scale e¤ects in individual skill.