a theory of commerce abstract the theory of commerce advanced here captures prominent features of retail trade large employment congestion effects anonymous posted prices and quantity discounts this theory is built around a directed search model where buyers preferences are private information the analytical solution is easily inserted in a neoclassical growth framework in this framework the parameters of retail trade are calibrated using commercial margins and employment welfare properties depend on the sellers ability to charge two tier prices with two tier prices the directed search equilibrium is efficient otherwise it is not this contrasts with the full information benchmark where directed search is always efficient

making the same mistake again or is this time different the world faces an economic crisis of unprecedented proportions but much of the policy response has certainly not lacked for precedent national governments and international organisations including the international monetary fund imf have looked to crises of the past for solutions to the present and austerity has become a familiar theme the inability to effectively resolve the current crisis however gives rise to the question is this time different this article provides a broad overview to the origins and development of the recent economic crisis and the resort to policies of austerity although there is historical precedent for the resort to austerity such as the uk treasury view during the 1920s and 1930s this time things are different many of the current problems are deeply rooted and reflect the impact of the shift towards free market economics that started in the 1970s 2 the origins of the crisis since the beginning of the 1970s the private sector finance in particular has reorganised on an increasingly global scale it has innovated in terms of both structure and products and it has experienced significant growth as tridico 2012 this issue shows this financialisation was characterised by a ballooning of stock exchanges as many firms decided not only to list their shares but also to become involved in speculative finance in response to pressures on firms to maximise shareholder value together with the progressive erosion of worker and trade union rights and influence labour markets became more flexible and real wages stagnated concurrently profits rebounded leading to burgeoning inequality in this context aggregate demand and consumption were bolstered by easy credit and the wealth effects of speculative bubbles first in stocks and shares and then in housing

the role of the media in fiscal consolidation programmes the case of ireland a number of european countries have implemented austerity programmes since the onset of the current economic crisis this paper focuses on fiscal consolidation a central aspect of such programmes using the case of ireland it investigates the significant role of the mass media in presenting such policies to the public a role which has so far remained unexamined conceiving of the irish experience over the past few decades as a case of neoliberalisation it uses a critical political economic conceptualisation of news organisations to consider 431 editorials and opinion articles discussing fiscal consolidation in three leading irish newspapers between 2008 and 2012 it finds that the majority of articles present viewpoints in favour of fiscal consolidation and display a preference for spending cuts over tax hikes which substantiates the claim that ireland has adopted neoliberal policies to address the crisis only a minority of articles oppose fiscal consolidation these mostly contest specific spending cuts but usually fail to criticise fiscal consolidation itself by calling for economic alternatives such as keynesian stimulus differences between newspapers are also discussed highlighting their ideological cleavages

incomplete wage posting we consider a directed search model in which workers differ in productivity productivity becomes observable to firms after assessing their workers on the job but it is not verifiable firms with vacancies choose between posting a noncontingent wage and leaving wages subject to bargaining with the worker under wage bargaining firms cannot optimize the trade off between paying higher wages and having a larger probability of filling vacancies but wage bargaining makes wages increasing in worker productivity and so may allow firms to attract better workers into the vacancy when workers heterogeneity is large and bargaining powers come close to satisfying hosios s rule firms opt for bargaining yet equilibria with bargaining fail to maximize aggregate net income and sometimes are not constrained pareto optimal

multiple applications competing mechanisms and market power abstract we consider a labor market with search frictions in which workers make multiple applications and firms can post and commit to general mechanisms that may be conditioned both on the number of applications received and on the number of offers received by the firm s candidate when the contract space includes application fees there exists a continuum of symmetric equilibria of which only one is efficient and it has a posted wage equal to match output in the inefficient equilibria the wage is below match output and the value of a worker s application depends on whether he or she receives another offer this allows individual firms to free ride on one another and gives firms market power when we endogenize the number of applications and allow for general mechanisms only the efficient equilibrium survives by allowing for general mechanisms we are able to examine the sources of inefficiency in the multiple applications literature

alleviating transitory food crises in sub saharan africa international altruism and trade the donor community has responded to unexpected or transitory drops in domestic food production in many countries in sub sabaran africa an empirical framework estimates and analyzes the correlation between this food aid and domestic production both emergency food aid and commercial imports are used to offset the effects of negative output shocks in sub saharan african countries the major recipients of global emergency food aid on average every one ton drop in cereal production is offset by the delivery of 0 8 tons of cereal and dairy products from abroad over four years most food aid arrives within a year of a shock and correlation of shocks over time along with the differences between crop years and calendar years may explain the link between aid and production the economic and political considerations also determine the global response to the emergency food needs of countries in africa the international response is not contingent on the form of government or the level of political and human rights violations poorer countries and those with well established nonemergency food aid programs receive larger amounts of emergency aid when needed food aid has long helped low income countries to sustain domestic food supplies and cope with transitory food insecurity and it has also been used to accelerate agricultural development and increase food production but food aid has been heavily criticized in the past decade on several grounds first it has been charged that the international response to food crises is slow meager and inefficient a related accusation suggests that countries granting emergency food aid disciriminate on the basis of the political and economic orientation of the recipient country second food aid has been thought to discourage domestic food production thus leading to long term dependence on donors finally it has

sources of intra industry wage dispersion how much do employers matter observed human capital explains less than half of wage variation in bls industry wage surveys establishment based wage differentials controlling for occupation account for 20 70 percent of intra industry wage variation this corresponds to a standard deviation in wages of 14 percent of the mean almost as large as interindustry wage variation investigation suggests that establishment wage differentials are not random variations or returns to usual measures of human capital

choosy search and the mismatch of talents this article proposes a multi sector matching model where workers have symmetric sector specific skills and the search market is segmented by sector workers choose the range of markets they are willing to participate in i identify a composition externality workers do not take into account the impact of their choice on sector specific mean productivity among the pools of job seekers consequently workers prospect too many market segments and there is room for public policy even when the so called hosios condition holds

compensating wage differentials in stable job matching equilibrium abstract this paper studies implicit pricing of non wage job characteristics in the labor market using a two sided matching model it departs from the previous literature by allowing worker heterogeneity in productivity which gives rise to a double transaction problem in a hedonic model deriving sufficient conditions under which assortative matching is the unique stable job worker matching we show that observed wage differentials between jobs reflect not only compensating wage differentials but also worker productivity gaps between the jobs we find that the job worker matching pattern determines the extent to which compensating wage differentials are confounded with the worker productivity gap effect

equivalence of auctions and posted prices abstract we determine the equilibrium in two transaction mechanisms auctions and posted prices agents choose whether to participate in markets where trades are consummated by auctions or in markets where sellers post prices we show that the selling mechanisms are practically equivalent previous studies have shown that auction markets emerge as a unique evolutionary stable equilibrium when compared to bargaining markets posted price markets dominate bargaining markets similarly journal of economic literature classification numbers c78 c73 d44

labour im mobility and monopsonistic exploitation of workers in the urban informal sector lessons from a field study it is well recognised in labour economics that employers in monopsonistic competition have market power to set wages below the productivity of workers if workers are immobile which causes monopsonistic exploitation of workers monopsonistic exploitation is propelled by employers expectations about the degree of im mobility of workers and therefore by ex post mobility of workers it hence begs a question of what determines the relative im mobility of informal workers which has significant implications for monopsonistic exploitation and working poverty in the urban informal sector from our field study of urban and peri urban labour markets in bangladesh by modifying the method of stochastic frontier analysis we explain the behavioural foundation to the relative im mobility of informal workers we thereby unravel the effects of individual and household characteristics sociological institutional factors and household ties including worker s kinship on the relative immobility of a worker that can in turn explain monopsonistic exploitation and working poverty widely prevalent in the urban informal sector of south asia

competitive search equilibrium in this paper i construct an equilibrium for markets with frictions which is competitive in the sense that all agents are price takers and maximize utility subject to a set of market parameters i show that the equilibrium allocation is socially optimal i also show how the competitive search equilibrium can be achieved if employers with vacancies can advertise publicly the wages they pay

unravelling of dynamic sorting we consider a two sided finite horizon search and matching model with heterogeneous types and complementarity between types the quality of the pool of potential partners deteriorates as agents who have found mutually agreeable matches exit the market when search is costless and all agents participate in each matching round the market performs a sorting function in that high types of agents have multiple chances to match with their peers however this sorting function is lost if agents incur an arbitrarily small cost in order to participate in each round with a sufficiently rich type space the market unravels as almost all agents rush to participate in the first round and match and exit with anyone they meet copyright 2005 wiley blackwell

efficient competition through cheap talk the case of competing auctions we consider a large market where auctioneers with private reservation values compete for bidders by announcing cheap talk messages if auctioneers run efficient first price auctions then there always exists an equilibrium in which each auctioneer truthfully reveals her type the equilibrium is constrained efficient assigning more bidders to auctioneers with larger gains from trade the choice of the trading mechanism is crucial for the result most notably the use of second price auctions equivalently ex post bidding leads to the nonexistence of any informative equilibrium we examine the robustness of our finding in various dimensions including finite markets and equilibrium selection

search theory the 2010 nobel memorial prize in economic sciences this paper surveys search theory with an emphasis on the contributions of the 2010 laureates for the nobel memorial prize in economic sciences peter diamond dale mortensen and christopher pissarides

information and prices with capacity constraints since george j stigler s 1961 seminal work the literature on consumer search has attempted to understand the relationship between the prices that are set by sell ers and the extent to which consumers can observe and compare these prices before purchasing a good in the theoretical branch of this literature one conclusion is almost universal as buyers become better informed about prices ex ante sellers will set lower prices in equilibrium 1 in fact this relationship is so engrained in the theory of consumer search that it is often accepted as manifest and applied to various markets and situations with little or no hesitation 2 in this paper i examine a completely standard consumer search model with one small yet often relevant additional restriction i assume that sellers possess a limited number of goods or can only serve a limited number of customers at once so that a given seller may be unable to meet realized demand in such an environment i show that the conven tional wisdom regarding information and prices does not necessarily hold having more informed consumers can lead to either an increase or decrease in equilibrium prices or have no effect at all i characterize the regions of the parameter space where each is likely to occur the assumption that a seller s capacity may be fixed and that this constraint may be binding is a fairly important feature of many markets in some markets time is the constraint doctors and barbers and contractors can only serve a limited number of clients at once in other markets space is an issue private schools have a lim ited number of spots in each classroom while restaurants have a limited number of tables perhaps most common is markets in which sellers inventory is occasionally a limiting factor landlords have a limited number of apartments for rent and ticket agents have a limited number of concert tickets available in markets such as these consumers regularly trade off price and availability they are willing to pay more for

sorting and decentralized price competition we investigate the role of search frictions in markets with price competition and how it leads to sorting of heterogeneous agents there are two aspects of value creation the match value when two agents actually trade and the probability of trading governed by the search technology we show that positive assortative matching obtains when complementarities in the former outweigh complementarities in the latter this happens if and only if the match value function is root supermodular that is its nth root is supermodular where n reflects the elasticity of substitution of the search technology this condition is weaker than the condition required for positive assortative matching in markets with random search

price dispersion with directed search we model a market where identical buyers direct their search to identical capacity constrained sellers sellers cannot fully commit to the list price so strategic bargaining may determine the sale price we study search and pricing behavior in symmetric equilibrium sale prices exhibit equilibrium dispersion as they respond naturally to local demand conditions uncoordinated search decisions lead to equilibrium demand heterogeneity so sellers realizing large demand bargain prices up we characterize the sale price distribution parametrically studying how different commitment limitations and market features affect pricing and surplus shares we also determine endogenously

job queues and wages this paper uses job applications data to investigate the relationship between job queues and wage differentials the main finding is that openings for jobs that pay the minimum wage attract more job applicants than jobs that pay either slightly more or slightly less than the minimum wage this spike in the job application rate distribution suggests that ex ante rents generated for employees by an above market level minimum wage are not completely dissipated by reductions in nonwage benefits in addition we find that highly unionized firms large firms and firms in high wage industries tend to receive relatively many job applicants for openings

equilibrium wage dispersion and interindustry wage differentials this paper develops a search theoretic explanation of interindustry wage differentials given coordination problems in the labor market the probability of filling a vacancy is an increasing function of the wage offered in equilibrium firms that find vacancies more costly will offer higher wages the model thus explains the persistence of interindustry wage differentials and their correlation with industry average capital labor ratio and profitability additionally the model predicts that high wage firms will receive more applications per job opening and that wages in the labor market will behave as strategic complements

targeted search with horizontal differentiation in the marriage market abstract we develop a search matching model in the marriage market with heterogeneous men a continuum of types and heterogeneous women a finite number of types the model has two distinguishing features first men and women are also horizontally differentiated second the search is targeted each type of woman constitutes a distinctive submarket and men are able to choose beforehand in which submarkets to participate but the search is random within each submarket we show that there is always a unique equilibrium in which men are endogenously segmented into different submarkets and that the equilibrium matching pattern is weakly positive assortative we then explore how the equilibrium marriage pattern changes horizontally and vertically as some exogenous shocks occur in particular we show that an internet induced increase in search efficiency would make the marriage pattern overall more assortative while an increase in the dispersion of the horizontal match fitness could make the marriage pattern overall less assortative

industry or academia basic or applied career choices and earnings trajectories of scientists we extend life cycle models of human capital investments by incorporating matching theory to examine the sorting pattern of heterogeneous scientists into different career trajectories we link differences in physical capital investments and complementarities between basic and applied scientists across industry and academic settings to individual differences in scientist ability and preferences to predict an equilibrium matching of scientists to careers and to their earnings evolution our empirical analysis using the national science foundation s scientists and engineers statistical data system database is consistent with theoretical predictions of i sorting by ability into basic versus applied science among academic scientists but not among industry scientists and ii sorting by higher taste for nonmonetary returns into academia over industry the evolution of an earnings profile is consistent with these sorting patterns the earnings trajectories of basic and applied scientists are distinct from each other in academia but are similar in industry this paper was accepted by lee fleming entrepreneurship and innovation

intertemporal labour supply with search frictions starting in the 1970 s wage inequality and the number of hours worked by employed u s prime age male workers have both increased we argue that these two facts are related we use a labour market model with on the job search where by working longer hours individuals acquire greater skills since job candidates are ranked by productivity greater skills not only increase worker s productivity in the current job but also help the worker to obtain better jobs when job offers become more dispersed wage inequality increases and workers work longer hours to obtain better jobs as a result average hours per worker in the economy increase this mechanism accounts for around two thirds of the increase in hours observed in data part of the increase is inefficient since workers obtain better jobs at the expense of other workers competing for the same jobs copyright oxford university press

cooperation among strangers under the shadow of the future we study the emergence of norms of cooperation in experimental economies populated by strangers interacting indefinitely can these economies achieve full efficiency even without formal enforcement institutions which institutions for monitoring and enforcement facilitate cooperation finally what classes of strategies do subjects employ we find that first cooperation can be sustained even in anonymous settings second some type of monitoring and punishment institutions significantly promote cooperation and third subjects mostly employ strategies that are selective in punishment

the urban informal sector in uruguay its internal structure characteristics and effects abstract the literature on third world urbanization has focused increasingly on the informal sector as a mechanism to explain first the survival strategies of the poor excluded from regular employment and second the strategies of formal firms to bypass regulatory constraints and reduce costs this paper pursues these lines of research in a special context namely that of uruguay a small country which followed a protective labor policy for many years but reversed it during the 1970s and early 1980s data come from a sample of 700 households in montevideo which are representative of the low income neighborhoods that comprise approximately two thirds of the city s population interviews were held in 1983 1984 the analysis focuses on the following issues 1 the proportion of individuals and households who participate in the informal economy 2 the types of informality that exist in both principal and secondary occupations 3 the effects of informal employment on income 4 differences in age sex and education between different types of workers 5 changes in informal employment over time implications of findings for general definitions and hypotheses about the informal sector are examined the relationship of results to the neoliberal experiments attempted in uruguay between 1973 and 1984 is discussed

the revenge of the market on the rentiers why neo liberal reports of the end of history turned out to be premature starting from the perspective of heterodox keynesian minskyian kindlebergian financial economics this paper begins by highlighting a number of mechanisms that contributed to the current financial crisis these include excess liquidity income polarisation conflicts between financial and productive capital lack of appropriate regulation asymmetric information principal agent dilemmas and bounded rationalities however the paper then proceeds to argue that perhaps more than ever the macroeconomics that led to this crisis only makes analytical sense if examined within the framework of the political settlements and distributional outcomes in which it had operated taking the perspective of critical social theories the paper concludes that ultimately the current financial crisis is the outcome of something much more systemic namely an attempt to use neo liberalism or in us terms neo conservatism as a new technology of power to help transform capitalism into a rentiers delight in particular into a system without compulsions on big business i e one that imposes only minimal pressures on big agents to engage in competitive struggles in the real economy while doing the opposite to workers and small firms a key component in the effectiveness of this new technology of power was its ability to transform the state into a major facilitator of the ever increasing rent seeking practices of oligopolistic capital the architects of this experiment include some capitalist groups in particular rentiers from the financial sector as well as capitalists from the mature and most polluting industries of the preceding techno economic paradigm some political groups as well as intellectual networks with their allies including many economists and the new left although rentiers did succeed in their attempt to get rid of practically all fetters on their greed in the end the crisis materialised when markets took their inevitable revenge on the rentiers by calling their blatant bluff

sorting through search and matching models in economics toward understanding assortative matching this is a self contained introduction to research on search and matching we first explore the nontransferable and perfectly transferable utility matching paradigms and then a unifying imperfectly transferable utility matching model motivated by some unrealistic predictions of frictionless matching we flesh out the foundational economics of search theory we then revisit the original matching paradigms with search frictions we finally allow informational frictions that often arise such as in college student sorting

marriage and class here we consider a matching model where agents are heterogeneous and utilities nontransferable we utilize this framework to study how equilibrium sorting takes place in marriage markets we impose conditions that guarantee the existence of a steady state equilibrium and then characterize it several examples are developed to illustrate the richness of equilibria the model reveals an interesting sorting externality that can support multiple steady state equilibria even with constant returns to matching excerpt

frictional assignment i efficiency abstract this paper examines the two sided matching problem where the agents on each side of the market are heterogeneous and the matching process is time consuming this is cast in a labor market setting where workers of different skills match with different machine qualities i characterize the efficient allocation and then show that it can be decentralized by a market mechanism the efficient assignment is not always positively assortative despite the fact that machine qualities and skills are complementary in production to decentralize the efficient allocation the market mechanism requires the firms to post wages and commit each machine quality to a particular skill implications on wage inequality are briefly examined journal of economic literature classification numbers j31 e24 j64

a mechanism design approach to the tiebout hypothesis we revisit the tiebout hypothesis in a world in which agents may learn extra information as to how they value the various local public goods once located and jurisdictions are free to commit to whatever mechanism to attract citizens it is shown in quasi linear environments that efficiency can be achieved as a competitive equilibrium when jurisdictions seek to maximize local revenues but not necessarily when they seek to maximize local welfare interpretations and limitations of the result are discussed

sorting versus screening search frictions and competing mechanisms in a market where sellers compete by posting trading mechanisms we allow for a general search technology and show that its features crucially affect the equilibrium mechanism price posting prevails when meetings are rival i e when a meeting by one buyer reduces another buyer s meeting probability under price posting buyers reveal their type by sorting ex ante only if the meeting technology is sufficiently non rival price posting is not an equilibrium multiple buyer types then visit the same sellers who screen ex post through auctions

statistical discrimination and duration dependence in the job finding rate this article models a frictional labour market where employers endogenously discriminate against the long term unemployed the estimated model replicates recent experimental evidence which documents that interview invitations for observationally equivalent workers fall sharply as unemployment duration progresses we use the model to quantitatively assess the consequences of such employer behaviour for job finding rates and long term unemployment and find only modest effects given the large decline in callbacks interviews lost to duration impact individual job finding rates solely if they would have led to jobs we show that such instances are rare when firms discriminate in anticipation of an ultimately unsuccessful application discrimination in callbacks is thus largely a response to dynamic selection with limited consequences for structural duration dependence and long term unemployment

search intensity directed search and the wage distribution we propose a search equilibrium model in which homogenous rms post wages along with a vacancy to attract job seekers while homogenous unemployed workers invest in costly job seeking the key innovation relies on the organization of the search market and the search behavior of the job seekers the search market is continuously segmented by wage level individuals can spread their search investment over the di erent sub markets and search intensity has marginal decreasing returns on each sub market we show that there exists a non degenerate equilibrium wage distribution the density of this wage distribution is increasing at low wages and decreasing at high wages under additional restrictions it is hump shaped and it can be right tailed our results are illustrated by an example originating a beta wage distribution

public investment criterion in an overlapping generations economy this paper extends the sandmo dreze model of public investment to the overlapping generations model where each person lives for two periods working in the first and retired in the second it is shown that in a non tax distorted economy with without the corporation income tax if government surplus can be redistributed between younger and older generations then the second best optimal discount rate for public investment in steady states should be not only the weighted average formula the market rate of interest derived by sandmo and dreze economica 1971 but also the population growth rate

the significance of federal taxes as automatic stabilizers using the taxsim model for the period 1962 95 we consider the federal tax system s impact as an automatic stabilizer despite the many changes in the tax system there has been relatively little change in its role as an automatic stabilizer we estimate that individual federal taxes offset perhaps as much as 8 percent of initial shocks to gdp we also suggest that the progressive income tax may help to stabilize output via its effect on the supply of labor an additional effect that may even be of similar magnitude to the more traditional path of stabilization through aggregate demand

taxation and redistribution of residual income inequality this paper studies the optimal redistribution of income inequality caused by the presence of search and matching frictions in the labor market we study this problem in the context of a directed search model of the labor market populated by homogeneous workers and heterogeneous firms the optimal redistribution can be attained using a positive unemployment benefit and an increasing and regressive labor income tax the positive unemployment benefit serves the purpose of lowering the search risk faced by workers the increasing and regressive labor tax serves the purpose of aligning the cost to the firm of attracting an additional applicant with the value of an application to society

social spending and automatic stabilizers in the oecd the macroeconomic literature on automatic stabilization tends to focus on taxes and dismiss the relevance of government expenditure except for unemployment compensation our results go sharply contrary to this view we engage in an empirical analysis of 21 oecd countries from 1982 to 2003 and find that age and health related social expenditure as well as incapacity and sick benefits all react to the cycle in a stabilizing manner while possibly new in the macro literature this conforms to many results in studies in labour economics the policy implications are broad since much previous analysis of discretionary fiscal policy rests on official figures for automatic stabilization there are also major implications for efforts to incorporate automatic fiscal policy in simulation models julia darby and jacques melitz

efficiency of simultaneous search this paper presents an equilibrium labor search model in which workers can simultaneously apply to multiple firms to increase their search intensity they observe firms wage postings before choosing where to apply owing to coordination frictions a firm may not receive any applications otherwise it is able to hire unless all its applicants have better offers it is shown that the equilibrium converges to the efficient walrasian outcome as application costs vanish even for nonnegligible application costs the entry of firms the search intensity and the number of filled vacancies are constrained efficient wage dispersion is essential for constrained efficiency

does unmeasured ability explain inter industry wage differentials this paper provides empirical assessments of the two leading explanations of measured inter industry wage differentials 1 true wage differentials exist across industries and 2 the measured differentials simply reflect unmeasured differences in workers productive abilities first we summarize the existing evidence on the unmeasured ability explanation second we construct a simple model which shows that if matching is important then endogenous job change decisions can create important self selection biases even in first differenced estimates of industry wage differentials third we analyze a sample that approximates the experiment of exogenous job loss we find that i the wage change experienced by a typical industry switcher closely resembles the difference in the relevant industry differentials estimated in a cross section and ii pre displacement industry affiliation plays an important role in post displacement wage determination

inefficient sorting under output sharing abstract i study sorting in a frictional market asset owners post their terms then workers direct their search when the owners switch from prices to shares the competition between workers is handicapped the unique equilibrium features inefficient positive assortative matching the queue lengths are distorted even though the hosios efficiency condition holds for every pair of types for any distribution of types all workers pair up with better assets the best workers suffer while the weakest workers gain the opposite occurs on the asset side competition drives the asset owners to post flatter contracts it leads to constrained efficiency whenever prices are feasible otherwise handicapped competition results in inefficient sorting

competitive equilibrium with search frictions a general equilibrium approach abstract when the trading process is characterized by search frictions traders may be rationed so markets need not clear we build a general equilibrium model with transferable utility where the uncertainty arising from rationing is incorporated in the definition of a commodity in the spirit of the arrow debreu theory prices of commodities then depend not only on their physical characteristics but also on the probability that their trade is rationed the standard definition of competitive equilibrium is extended by replacing the market clearing condition with an exogenous matching function which describes a trading technology that is not frictionless as is typical in search models the matching function relates the rationing probabilities of buyers and sellers to the ratio of buyers to sellers in the market when search frictions vanish our model is equivalent to the continuous assignment model of gretsky et al 20 we adapt their approach which uses linear programming techniques and duality theory to show that a competitive equilibrium exists and is constrained efficient in our environment our competitive equilibrium notion is equivalent to that of directed or competitive search the strength of our formulation and the linear programming approach is that they allow us to generalize the constrained efficiency and existence results in the directed search literature to a much broader class of economies our framework also opens the door to the use of existing algorithms for computing equilibria and taking these models to the data

the short and long run effects of fiscal policy this article develops a dynamic dual economy general equilibrium model that can be adapted to analyze the short and long run effects of a variety of fiscal policies the model provides a complete description of how the private capital stock underemployment and real wages evolve during the adjustment process the main policy message conveyed by the results is that the method by which the fiscal deficit is lowered is important there is a strong presumption that higher prices for publicly produced intermediate inputs and cutbacks in government expenditure to support social infrastructure will reduce private investment real wages in both the formal and informal sectors and the share of the labor force employed in the high wage manufacturing sector by contrast layoffs in the final goods and services sectors can potentially improve the external balance without sacrificing output and employment growth

more on middlemen equilibrium entry and efficiency in intermediated markets this paper generalizes rubinstein and wolinsky s 1987 model of middlemen intermediation by incorporating production and search costs plus more general matching and bargaining this allows us to study many new issues including entry efficiency and dynamics in the benchmark model equilibrium exists uniquely and involves production and intermediation for some parameters but not others sometimes intermediation is essential the market operates if and only if middlemen are active if bargaining powers are set correctly equilibrium is efficient if not there can be too much or too little economic activity this is novel compared to the original rubinstein wolinsky model where equilibrium is always efficient

search mismatch and unemployment abstract this paper explores the efficiency of the equilibrium allocation in a matching model with heterogeneous workers and jobs in the basic setup there are two types of workers with different skill levels both types can perform the simple tasks of unskilled jobs while the complex tasks of skilled jobs require a high ability worker we demonstrate that the equilibrium outcome with random search and ex post bargaining is never efficient under the hosios condition the average wage is correct but bargaining compresses the wage distribution relative to workers shadow values this feature distorts the relative profits of jobs making it too attractive for firms to create skilled jobs furthermore due to the low skill premium the high ability workers may accept too many jobs finally in an extension we show that the introduction of separate markets for the two types of jobs is not sufficient to guarantee efficiency

ex ante price offers in matching games non steady states a matching problem is considered in which sellers can publicly commit to a trading price that differs from the price at which buyers expect to trade elsewhere in the market when demand and supply are nearly equal the equilibrium ex ante price offer lies below the price associated with the nash bargaining split this relationship reverses when the level of excess demand is large sellers always have an incentive to make ex ante offers when prices elsewhere are determined by nash bargaining this can be interpreted to mean that nash bargaining is an unstable pricing institution copyright 1991 by the econometric society

the assignment of workers to jobs in an economy with coordination frictions this paper studies the assignment of heterogeneous workers to heterogeneous jobs owing to the anonymity of a large labor market workers use mixed strategies when applying for jobs this randomness generates coordination frictions two workers may apply for a particular job whereas an identical job gets no applications the model generates assortative matching with a positive but imperfect correlation between matched workers and firms types it predicts that a worker s wage is increasing in her job s productivity and a firm s profit is increasing in its employees productivity the model also yields a version of the welfare theorems

long term partnership formation marriage and employment of course marriage and employment are different nevertheless a worker looking for a job a rm looking for worker or a single person looking for a marriage partner face similar problems as all are seeking a long term partner indeed forming long term partnerships is a common occurrence in life there are many other examples business people search for other business people to form a pro table relationship bridge players seek to nd a suitable partners students search for a good university we would all like to nd a good friend etc the problem becomes signi cant if there are substantial differences in the return obtained from forming a partnership with different partners for example employers differ in the wages they offer or in the work environment they provide in such a situation a worker may reject some job offers similarly as many have learned to their cost some make better marriage partners than others the problem is two sided while a worker is evaluating a potential employer the employer is also evaluating the worker it is this two sided aspect of the problem that generates a signi cant interest a worker s willingness to accept employment at a rm depends not only on the characteristics of the rm but also the other possible options open to the worker the better an individual s opportunities elsewhere the more selective he or she will be in evaluating a potential partnership an academic who believes harvard may make an offer in the near future will be more selective in evaluating offers from lesser universities in this way expectations play a role if a single man believes that few if any women will nd him an acceptable marriage partner then he may accept the rst opportunity that presents itself partnership formation typically does not comply with a classic market situation where all participants know everything and all trades take place at zero cost finding a job nding a husband or wife or nding a business partner is a time consuming activity where opportunities typically arrive over time at uncertain intervals of time of course we can act in ways that in uence the arrival rate of potential partner workers go to employment agencies or read help wanted advertisements in newspapers singles of a certain age go to discos or join tennis clubs the literature on search and matching sm see mortensen 1982 and pissarides 1990 for early examples 1 provides an excellent framework for the economic journal 109 june f307 f334 royal economic society 1999 published by blackwell publishers 108 cowley road oxford ox4 1jf uk and 350 main street malden ma 02148 usa

performance pay and wage inequality an increasing fraction of jobs in the u s labor market explicitly pay workers for their performance using bonus pay commissions or piece rate contracts using data from the panel study of income dynamics we show that compensation in performance pay jobs is more closely tied to both observed and unobserved productive characteristics of workers than compensation in non performance pay jobs we also find that the return to these productive characteristics increased faster over time in performance pay than in non performance pay jobs we show that this finding is consistent with the view that underlying changes in returns to skill due for instance to technological change induce more firms to offer performance pay contracts and result in more wage inequality among workers who are paid for performance thus performance pay provides a channel through which underlying changes in returns to skill get translated into higher wage inequality we conclude that this channel accounts for 21 of the growth in the variance of male wages between the late 1970s and the early 1990s and for most of the increase in wage inequality above the eightieth percentile over the same period

pricing and matching with frictions suppose that n buyers each want one unit and m sellers each have one or more units of a good sellers post prices and then buyers choose sellers in symmetric equilibrium similar sellers all post one price and buyers randomize hence more or fewer buyers may arrive than a seller can accommodate we call this frictions we solve for prices and the endogenous matching function for finite n and m and consider the limit as n and m grow the matching function displays decreasing returns but converges to constant returns we argue that the standard matching function in the literature is misspecified and discuss implications for the beveridge curve

directed search with multi vacancy firms abstract i construct a directed search model in which firms decide whether to enter a market and how many positions to create within this framework the number of firms and the size of each firm are determined endogenously wages play an allocative role in the matching process and the frictions inherent in this process derive from the equilibrium behavior of workers and firms i characterize the unique equilibrium comparative statics generate testable implications for cross sectional variation in matching efficiency as well as the dynamic behavior of vacancies and unemployment moreover allowing for ex ante heterogeneity across firms the model can easily and naturally generate the observed relationship between firm size wages profitability and hiring

competitive search equilibrium with multidimensional heterogeneity and two sided ex ante investments abstract we analyze a competitive price taking search model where workers and firms make costly investments e g in education and physical capital respectively before they enter the labor market the environment features transferable utility and symmetric information a key novelty with respect to existing work is that we allow for multidimensional heterogeneity on both sides of the market the probabilities of finding and filling different jobs and the corresponding wages are determined endogenously in equilibrium we show that constrained efficient allocations can be determined as optimal solutions to a linear programming problem whereas the prices supporting these allocations and the associated expected payoffs for workers and firms correspond to the solutions of the dual of that linear program we use this characterization to show that an equilibrium exists and is constrained efficient under very general conditions the fact that linear programming techniques are used for the structural estimation of frictionless matching models suggests that our framework is potentially useful for empirical studies of labor markets and other markets where search frictions are prevalent

applications and interviews firms recruiting decisions in a frictional labour market i develop a directed search model to study the recruitment decisions of firms competing for workers who ex post differ in two dimensions 1 their match productivity and 2 their probability of accepting a job offer endogenously determined by their choice of application portfolio to attract these workers firms post a recruiting intensity and a hiring standard in addition to terms of trade a higher recruiting intensity is costly but allows the firm to select more applicants for an interview which reveals their productivity the hiring standard solves the tradeoff between immediate hiring and waiting for a potentially better match in the future i characterize equilibrium and find that various outcomes including uniqueness of equilibrium and the cyclicality of recruiting intensity crucially depend on firms recruiting cost and workers search cost calibration of the model to the u s labour market indicates a continuum of equilibria given selection of a particular equilibrium hiring standards are countercyclical while recruiting intensity is procyclical the calibrated model creates more amplification than a standard model without intensive margins and gives rise to procyclical match efficiency when viewed through the lens of a cobb douglas matching function

identifying sorting in theory assortative matching between workers and rms provides evidence of the complementarities or substitutes in production the presence of complementarities is important for policies that aim to achieve the optimal allocation of resources for example unemployment insurance we argue that using wage data alone it is virtually impossible to identify whether assortative matching is positive or negative even though we cannot identify the sign of the sorting we can identify the strength i e the magnitude of the cross partial and the associated welfare loss we show rst that the wage for a given worker is non monotonic in the type of his employer this is due to the fact that in a sorting model wages reect the opportunity cost of mismatch we show analytically that this non monotonicity prevents standard rm xed eects to correlate with the true type of the rm we then propose an alternative procedure that measures the strength of sorting in the presence of search frictions knowing the strength of sorting facilitates the measurement of the output loss due to mismatch

nairobi s informal sector dynamic entrepreneurs or surplus labor the 1972 international labour office ilo report on kenya and its use of the term informal sector sparked off a great deal of controversy in the development literature over the meaning and usefulness of such a concept some critics have argued that the motivations and activities of participants in what is called the informal sector are so fundamentally diverse in nature that to write of a single sector which can be usefully incorporated in models of the urban economy of ldcs is fruitless partly as a response to these critics others have disaggregated the urban economy into two or three subsectors which are then used to analyze the interdependence and explain the dynamics of the urban labor market through time unfortunately the empirical base for testing these models and resolving some of these arguments is extremely sketchy and in most cases nonexistent in a partial attempt to fill this lacuna especially in kenya a survey of informal sector enterprises in nairobi was launched in mid 1977 the results of the survey are used to test some general hypotheses about the sector and the paper offers an alternative view of the role of the sector in the urban economy of an ldc with particular reference to kenya

optimal life cycle unemployment insurance we argue that us welfare would rise if unemployment insurance were to be increased for young workers and decreased for old this is because young workers have little means to smooth consumption during unemployment and want jobs to accumulate high return human capital so unemployment insurance is highly valuable to them while the induced moral hazard problem is mild we consider a life cycle model with unemployment risk and endogenous search eort that we calibrate to match us labor market institutions we nd that allowing unemployment replacement rates and other government transfers to decline with age yields sizeable welfare gains which amount to around two thirds of the gains attained under the constrained optimal scheme for unemployment insurance over the life cycle

ex post bidding and efficient coordination unemployment we study the implementation of constrained efficient allocations in labour markets where a basic coordination problem leads to an equilibrium matching friction we argue that these allocations can be achieved in a non cooperative equilibrium if wages are determined by ex post bidding this holds true even in finite sized markets where the equilibrium matching process has decreasing returns to scale where the hosios rule does not apply both with and without heterogeneity

the mortensen rule and efficient coordination unemployment we study the implementation of constrained efficient allocations in labour markets where a basic coordination problem leads to an equilibrium matching function we argue that these allocations can be achieved in equilibrium if wages are determined by ex post bidding this holds true even in finite sized markets where the equilibrium matching function has decreasing returns to scale where the hosios rule does not apply both with and without heterogeneity this wage determination mechanism is similar to the one proposed by mortensen 1982 in a different setting

constrained efficiency with adverse selection and directed search abstract this paper studies constrained efficiency in guerrieri et al s 2010 model of adverse selection and directed search buyers post contracts and sellers with private information about their type direct their search toward their preferred contract buyers and sellers then match bilaterally and trade if the guerrieri shimer wright equilibrium fails to achieve the first best then the planner subject to the frictions of the environment achieves strictly higher welfare than the equilibrium i e the equilibrium is not ex ante constrained efficient under certain conditions the planner achieves an allocation that even pareto dominates the equilibrium i e the equilibrium is not interim constrained efficient under other conditions the planner can completely undo the effects of adverse selection and achieves the first best cross subsidization is the key to these results

the macroeconomic stabilisation effects of social security and 401 k plans this paper investigates how various retirement institutions impact the macroeconomy we find that for every 1 percentage point increase in the output gap net flows of various government programmes including social security decrease by 0 34 percentage points while net flows of 401 k plans increase by 0 05 percentage points in levels for every 1 increase in real gross domestic product net flows from various government programmes shrink by 45 cents whereas net flows from 401 k plans increase by 4 6 cents in other words 401 k plans reduce the automatic stabilisation impact of government programmes by 10 15 moreover we find that social security has a net negative effect on household consumption while 401 k retirement accounts work the opposite way in fact the destabilising effect of 401 k plans on consumption is twice as strong as the one attributed to social security these results highlight a significant problem with 401 k retirement plans and any retirement plan that is dependent on financial markets copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press