We consider Roy’s economies with perfectly competitive labor markets and uncertainty. Firms choose their investments in physical capital before observing the characteristics of the workers that they will hire. We provide conditions under which equilibrium allocations are constrained Pareto...

The paper studies a two-sector economy with investments in human and physical capital and imperfect labor markets. Workers and firms endogenously select the sector they are active in, and choose the amount of their investments. To enter the high-skill sector, workers must pay a fixed cost that...