We study the endogenous formation of organizations by extending the framework of Garicano and Rossi-Hansberg (2004). This is done by endogenizing the distribution of knowledge through pre-match education investment. Education is costly, depends on ability, and stochastically improves realized knowledge à la Chade and Lindenlaub (2022). Firstly, this means that we account for equilibrium effects: knowledge acquisition depends on expected earnings, which in turn are affected by the education choices of all agents. Secondly, as a technical contribution, we decouple the problem of acquiring knowledge from that of how to organize it by modeling knowledge acquisition as stochastic. The equilibrium is shown to be unique, and analytic comparative statics are derived. A reduction in the cost of investment yields an increase in wages for workers, and a decrease in rents for managers. Simultaneously, large firms increase in size while smaller firms decrease their employment. Similar results arise for an improvement (in the first-order stochastic sense) of the distribution of ability.

Economic agents are often uncertain about their valuations for goods or services. Learning about said goods/services allows them to reduce this uncertainty. What does trade look like when a buyer and a seller with unknown and interdependent valuations are able to learn in private? We explore this question in a stylized bilateral trade model where a seller privately observes a signal before pricing the good. Before observing the price, the buyer flexibly acquires a signal at a cost that increases in informativeness. We find that when information is free, the seller extracts all the surplus whenever there is trade. As a result, equilibria are Pareto-ranked: the best equilibrium is the one where full information is acquired and a worst equilibrium is one where no learning takes place. We show that for positive but vanishing costs, prices must eventually convey information.