44 research outputs found

    Heterogeneous Firms in a Finite Directed Search Economy

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    We consider a directed search model for a finite economy with heterogeneous firms in two informational environments. In the first, the productivity of all firms is publicly observed. We prove existence of equilibria in pure posting strategies by firms and show that wage dispersion is driven by fundamentals. That is, more productive firms post higher wages and wage dispersion is absent when firms are homogeneous. When firms have heterogeneous productivities the equilibrium is not constrained efficient. In the second environment the productivity level of each firm is private information. The main results extend to this environment: Equilibria in pure strategies exist; strategies are increasing in productivity; and constrained efficiency does not obtain. When the productivity level of all firms is drawn from the same distribution, symmetric equilibria exist and the ranking of wages equals that of productivity.Directed Search, Labor Search, Market Power, Wage Differentials, Efficiency

    On the game-theoretic foundations of competitive search equilibrium.

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    We provide a unified directed search framework with general production and matching specifications that encompass most of the existing literature. We prove the existence of subgame perfect Nash equilibria in pure firm strategies in a finite version of the model. We use this result to derive a more complete characterization of the equilibrium set for the finite economy and to extend convergence results as the economy becomes large to general production and matching specifications. The latter extends the microfoundations for the standard market utility assumption used in competitive search models with a continuum of agents to new environments.

    A Model of Money with Multilateral Matching, Second Version

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    We develop a model of monetary exchange that avoids several common criticisms of the recent microfoundations literature. First, rather than random matching, we assume that buyers know the location of all sellers, and hence the process of finding a partner is deterministic, although trade is still stochastic since the number of buyers visiting a given seller is random. Second, given multilateral matching, rather than bargaining, we assume that goods are allocated according to second-price auctions. Third, given this mechanism, we do not have to assume agents can observe each other’s money holdings or preferences, as is necessary for tractability with bargaining. A novel result is that homogeneous buyers hold different amounts of money, leading to equilibrium price dispersion. We find the closed-form solution for the distribution of money holdings. We characterize equilibrium and efficient monetary policy.Search Theory of Money, Budget Constrained Auctions, Friedman Rule

    Directed Search with Multiple Job Applications

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    We develop an equilibrium directed search model of the labor market where workers can simultaneously apply for multiple jobs. The main result is that all equilibria exhibit wage dispersion despite the fact that workers and firms are homogeneous. Wage dispersion is driven by the simultaneity of application choice. Risk-neutral workers apply for both ‘safe’ and ‘risky’ jobs. The former yield a high probability of a job offer, but for low pay, and act as a fallback option; the latter provide with higher potential payoff, but are harder to get. Furthermore, the density of posted wages is decreasing, consistent with stylized facts. Unlike most directed search models, the equilibria are not constrained efficient.

    Referral Networks and Inequality

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    Market Power and Efficiency in a Search Model

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    We build a theoretical model to study the welfare effects and resulting policy implications of firms’ market power in a frictional labor market. Our environment has two main characteristics: wages play a role in allocating labor across firms and there is a finite number of agents. We find that the decentralized equilibrium is inefficient and that the firms’ market power results in the misallocation of workers from the high to the low-productivity firms. A minimum wage forces the low-productivity firms to increase their wage, leading them to hire even more often thereby exacerbating the inefficiencies. Moderate unemployment benefits can increase welfare because they limit firms’ market power by improving the workers’ outside option.directed search, heterogeneity, inefficient allocation, market power

    The challenge of trade adjustment in Greece

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    A Search-Theoretic Model of the Retail Market for Illicit Drugs

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    A search-theoretic model of the retail market for illegal drugs is developed. Trade occurs in bilateral, potentially long-lived matches between sellers and buyers. Buyers incur search costs when experimenting with a new seller. Moral hazard is present because buyers learn purity only after a trade is made. The model produces testable implications regarding the distribution of purity offered in equilibrium, and the duration of the relationships between buyers and sellers. These predictions are consistent with available data. The effectiveness of different enforcement strategies is evaluated, including some novel ones which leverage the moral hazard present in the market.
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