Do marital prospects dissuade unmarried fertility?

Unmarried fertility was a lot lower in the 1970s than in the 1990s. It was also the case that unmarried mothers had much lower marriage rates than non-mothers, a differential that has largely vanished over time. Could this marriage-market penalty have been strong enough to explain why unmarried fertility rates were lower then? To explore this issue, we introduce a new model of fertility and marriage, based on directed search. Relative to the existing literature, the essential contributions of the model are to allow for accumulation of children over the lifecycle and for the marriage of single mothers. We use the model, in conjunction with US survey data, to explore the impact of marital prospects on the fertility decisions of unmarried women. We find that the decline, from the 1970s to 1995, in marriage rates of unmarried women with no children, can account for the dramatic rise in unmarried women’s share of births over that period

Competitive Auctions: Theory and Application

The theory of competitive auctions offers a coherent framework for modelling coordination frictions as a non-cooperative game. The theory represents an advancement over cooperative approaches that make exogenous assumptions about how output is divided between buyers and sellers and about the forces that bring buyers and sellers into local markets. Moreover, unlike price posting models, which fix the terms of trade prior to matching, competitive auction models have a bidding process that allocates the good (or service) to the highest valuation bidder at a price equal to the second highest valuation. Therefore, the competing auction model is more robust to problems in which there are heterogenous valuations. This paper develops the theory of competitive auctions and applies it to a number of practical problems in microeconomics, labor economics, industrial organization, investment theory and monetary economics.

Competitive Auctions: Theory and Application

The theory of competitive auctions offers a coherent framework for modelling coordination frictions as a non-cooperative game. The theory represents an advancement over cooperative approaches that make exogenous assumptions about how output is divided between buyers and sellers and about the forces that bring buyers and sellers into local markets. Moreover, unlike price posting models, which fix the terms of trade prior to matching, competitive auction models have a bidding process that allocates the good (or service) to the highest valuation bidder at a price equal to the second highest valuation. Therefore, the competitive auction model is more robust to problems in which there are heterogenous valuations. This paper develops the theory of competitive auctions and applies it to a number of practical problems in microeconomics, labor economics, industrial organization, investment theory and monetary economics.

Informational Intermediation and Competing Auctions

We examine the effects of provision of information about seller qualities by a third-party in a directed search model with heterogeneous sellers, asymmetric information, and where prices are determined ex post. The third party separates sellers into quality-differentiated groups and provides this information to some or all buyers. We show that this always raises total welfare, even if it causes the informed buyers not to trade with low quality sellers. However, buyers and some sellers may be made worse off in equilibrium. We also examine the provision of information by a profit maximizing monopoly, and show that it may have an incentive to overinvest in the creation of information relative to the social optimum.

Simple Reputation Systems

This paper develops a model of simple 'reputation systems' that monitor and publish information about the behavior of sellers in a market with search frictions and asymmetric information. The reputations created by these systems influence the equilibrium search patterns of buyers and thus provide for market-based 'punishment' of bad behavior. Our model allows us to determine the effects of the introduction of a reputation system on the behavior and welfare of buyers and sellers in such a market. We show that a simple reputation system that rewards honesty can enhance welfare by allowing good sellers to truthfully signal their type. However, we also show that in some cases the same reputation system is prone to strategic manipulation by sellers who always have low quality products. In this case, we show that an alternative simple reputation system that screens for type can be superior

The Value of a Reputation System

This paper explores the trade-off between the short-term benefits of false quality advertisements against the longer term costs of reputation damage. A directed search model is constructed in which submarkets are created by the advertisements and reputations of sellers. A reputation system links misleading advertisements in the present period to a lower reputation in the next period. We show that a reputation system always increases the prices of high quality products and directs search more accurately towards the sellers with such products. We also show that buyers are hurt by a reputation system if the market is thin -- has few sellers -- because the equilibrium increase in prices is greater than the equilibrium increase in the quality of trade. Finally, we show that a reputation system which screens for honesty increases social welfare by making sellers more truthful. However, we also show that a reputation for honesty is not always highly valued and that an alternative reputation system which screens for type can be more effective.reputation systems, directed search

Residual Wage Disparity and Coordination Unemployment

We ask: how much of the observed wage dispersion, among similar workers, can be explained by a lack of coordination among employers in their hiring practices?To answer this, we construct a directed search model with homogenous workers where firms can create either good or bad jobs, are uncoordinated with their job offers, and where on-the-job search is possible. Workers can exploit ex post opportunities when determining wages. The stationary equilibrium has both productivity dispersion - different wages due to different job qualities, and contract dispersion - different wages due to different market experiences for workers, and is constrained-efficient. Job arrival rates are endogenous and, as found in empirical studies, smaller for on-the-job searchers than for unemployed workers. We calibrate the model to the US economy and compare the implied statistics with those for empirical data. The equilibrium wage distribution is hump shaped, skewed significantly to the right, and, with baseline parameters, generates residual dispersion statistics 75-90% the size of those found empirically. However, the model overestimates the values of job finding rates and underestimates the average duration of unemployment.

Monetary Exchange with Multilateral Matching

This paper analyzes monetary exchange in a search model allowing for multilateral matches to be formed, according to a standard urn-ball process. We consider three physical environments: indivisible goods and money, divisible goods and indivisible money, and divisible goods and money. We compare the results with Kiyotaki and Wright (1993), Trejos and Wright (1995), and Lagos and Wright (2005) respectively. We …nd that the multilateral matching setting generates very simple and intuitive equilibrium allocations that are similar to those in the other papers, but which have important di¤erences. In particular, sur- plus maximization can be achieved in this setting, in equilibrium, with a positive money supply. Moreover, with ‡exible prices and directed search, the …rst best allocation can be attained through price posting or through auctions with lotteries, but not through auctions without lotteries. Finally, analysis of the case of divisible goods and money can be performed without the assumption of large families (as in Shi (1997)) or the day and night structure of Lagos and Wright (2005)Matching, Money, Directed Search

Monetary Exchange with Multilateral Matching

This paper analyzes monetary exchange in a search model allowing for multilateral matches to be formed, according to a standard urn-ballprocess. We consider three physical environments: indivisible goods and money, divisible goods and indivisible money, and divisible goods and money. We compare the results with Kiyotaki and Wright (1993), Trejos and Wright (1995), and Lagos and Wright (2005) respectively. We find that the multilateral matching setting generates very simple and intuitive equilibrium allocations that are similar to those in the other papers, but which have important differences. In particular, surplus maximization can be achieved in this setting, in equilibrium, with a positive money supply. Moreover, with flexible prices and directed search, the first best allocation can be attained through price posting or through auctions with lotteries, but not through auctions without lotteries. Finally, analysis of the case of divisible goods and money can be performed without the assumption of large families (as in Shi (1997)) or the day and night structure of Lagos and Wright (2005).monetary exchange; directed search; ex post bidding; multilateral matching