competition and the number of firms in a market are duopolies more competitive than atomistic markets this paper uses a variant of the standard search model to examine market equilibrium and the consequences for market equilibrium of an increase in the number of firms if marginal search costs increase with the number of searches then the demand curve facing any firm will be kinked with the elasticity of demand with respect to price decreases being less than with respect to price increases prices may not change in response to changes in marginal costs as the number of firms increases the maximum price that is consistent with equilibrium increases to the monopoly price but the minimum price decreases on the other hand if marginal search costs decrease with the number of searches equilibrium if it exists is characterized by a

on the effects of downstream entry we study the effects of entry in a downstream market where firms e g compaq and ibm cvs and safeway buy an input e g microprocessor grocery items from an upstream supplier e g intel procter gamble and sell their output to consumers we show demand conditions where contrary to conventional wisdom entry of a new downstream firm lowers the downstream market output and increases the consumer price thus consumers may be better off with fewer sellers in such markets we also show that this entry may cause the profit of each incumbent downstream firm to i remain unchanged ii decrease or iii even increase also for a class of widely used demand conditions the supplier s optimal price is shown invariant to the entry exit of its downstream buyer firms we classify all possible effects of downstream entry in terms of fundamental market demand conditions

consumer search incomplete exchange rate pass through and optimal interest rate policy this paper studies utility maximizing monetary policy in a two country economy with consumer search frictions search frictions provide a microfoundation for incomplete exchange rate pass through and international deviations from the law of one price lop i show that optimal interest rate policy targets deviations from the lop and acts to mitigate the effect of search frictions in a quantitative setting with internationally correlated technology and preference shocks optimal policy generates positive cross country correlation of nominal interest rates

endogenous skill biased technical change testing for demand pull effect in this article we use the unification of germany in 1990 to test the hypothesis that an increase in the supply of a production factor generates skill biased technical change we test for this mechanism in the context of the model presented by acemoglu and autor 2011 skills tasks and technologies implications for employment and earnings in o ashenfelter and d card eds handbook of labor economics vol 4b amsterdam north holland that allows endogenous assignment of skills to tasks in the economy we use cohorts of workers from comparable countries as a control group after discussing the possible confounding factors we conclude that this effect is absent the differential pattern among the countries seems to be determined by labor market flexibilization and tax reform

a theory of sticky rents search and bargaining with incomplete information abstract this paper offers the first theoretical explanation of housing rent stickiness and differential stickiness by housing structure type key features of rental markets worldwide previous theoretical work on the subject is sparse and explains why some landlords charge below market rents not stickiness apart from its interest for understanding housing markets and overall inflation rent stickiness is intriguing because it shows that stickiness can emerge in markets where the typical menu cost logic does not apply and where market participants typically engage in repeated bargaining over contracts our model involves search and bargaining with incomplete information in a two period game and generates stickiness in a novel manner the key decision is the landlord s choice of whether to renegotiate or not crucially landlords do not know tenant perceptions of unit quality the key force generating stickiness is that offering the identical contract preempts tenant search thus limiting tenants outside options and resolves uncertainty early risk aversion reinforces this mechanism and yields differential stickiness by landlord type renegotiation risk for large landlords disappears because the different outcomes rent increase rent decrease and vacancy average out landlords who manage only one unit loathe vacancy and are highly motivated to avoid renegotiation

equilibrium price dispersion with sequential search abstract the paper studies equilibrium pricing in a product market for an indivisible good where buyers search for sellers buyers search sequentially for sellers but do not meet every seller with the same probability specifically a fraction of the buyers meetings lead to one particular large seller while the remaining meetings lead to one of a continuum of small sellers in this environment the small sellers would like to set a price that makes the buyers indifferent between purchasing the good and searching for another seller the large seller would like to price the small sellers out of the market by posting a price that is low enough to induce buyers not to purchase from the small sellers these incentives give rise to a game of cat and mouse whose only equilibrium involves mixed strategies for both the large and the small sellers the fact that the small sellers play mixed strategies implies that there is price dispersion the fact that the large seller plays mixed strategies implies that prices and allocations vary over time we show that the fraction of the gains from trade accruing to the buyers is positive and nonmonotonic in the degree of market power of the large seller as long as the large seller has some positive but incomplete market power the fraction of the gains from trade accruing to the buyers depends in a natural way on the extent of search frictions

reap what you sow agricultural technology urbanization and structural change abstract this paper studies how productivity enhancing agricultural technology affects urbanization by provoking structural change we investigate these issues using a natural experiment in the united states the results show that technologies which improve crop productivity lead to a less urbanized economy as economic activity relocates from manufacturing and services towards agriculture the effects are highly persistent and are driven by the technology increasing agricultural labor demand our findings highlight the potentially unintended disruptive force of innovative technologies

international asset pricing and portfolio diversification with time varying risk we test the conditional capital asset pricing model capm for the world s eight largest equity markets using a parsimonious generalized autoregressive conditional heteroskedasticity garch parameterization our methodology can be applied simultaneously to many assets and at the same time accommodate general dynamics of the conditional moments the evidence supports most of the pricing restrictions of the model but some of the variation in risk adjusted excess returns remains predictable during periods of high interest rates our estimates indicate that although severe market declines are contagious the expected gains from international diversification for a u s investor average 2 11 percent per year and have not significantly declined over the last two decades

job search with bidder memories this paper revisits the no recall assumption in job search models with take it or leave it offers workers who can recall previously encountered potential employers in order to engage them in bertrand bidding have a distinct advantage over workers without such attachments firms account for this difference when hiring a worker when a worker first meets a firm the firm offers the worker a sufficient share of the match rents to avoid a bidding war in the future the pair share the gains to trade in this case the diamond paradox no longer holds

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

competition and price variation when consumers are loss averse we modify the salop 1979 model of price competition with differentiated products by assuming that consumers are loss averse relative to a reference point given by their recent expectations about the purchase consumers sensitivity to losses in money increases the price responsiveness of demand and hence the intensity of competition at higher relative to lower market prices reducing or eliminating price variation both within and between products when firms face common stochastic costs in any symmetric equilibrium the markup is strictly decreasing in cost even when firms face different cost distributions we identify conditions under which a focal price equilibrium where firms always charge the same focal price exists and conditions under which any equilibrium is focal

do consumers search for the highest price oligopoly equilibrium and monopoly optimum in differentiated products markets we develop a model of search among substitutes for the best combination of commodity variant and price in which the structure of search costs is manipulable by the suppliers of these variants e g by joining an existing market or opening a new one we analyze the subgame perfect equilibria arising in a multistage game involving specialized firms choice of entry variant and price and we compare them to a multiproduct monopolist s optimal choice we show that equilibrium prices increase in the number of substitutes sold in one market and that in the situation considered here monopoly increases welfare

price dispersion and the border effect abstract cross country price differences could reflect regional market segmentation within countries or national segmentation at the border in a search based model of price setting identifying national versus regional segmentation requires data on regional trade flows a calibration to u s and canadian data implies predominantly regional frictions u s producers are three times more likely to sell in their home region than another u s region and canadian producers are seven times more likely to sell in their home region than another canadian region frictions vis a vis foreign regions are only slightly higher models that ignore regional segmentation can misstate the severity of frictions at the border

how successful was the new deal the microeconomic impact of new deal spending and lending policies in the 1930s the new deal during the 1930s was arguably the largest peace time expansion in federal government activity in american history until recently there had been very little quantitative testing of the microeconomic impact of the wide variety of new deal programs over the past decade scholars have developed new panel databases for counties cities and states and then used panel data methods on them to examine the impact of new deal spending and lending policies for the major new deal programs in most cases the identification of the effect comes from changes across time within the same geographic location after controlling for national shocks to the economy many of the studies also use instrumental variable methods to control for endogeneity the studies find that public works and relief spending had state income multipliers of around one increased consumption activity attracted internal migration reduced crime rates and lowered several types of mortality the farm programs typically aided large farm owners but eliminated opportunities for share croppers tenants and farm workers the home owners loan corporation s purchases and refinancing of troubled mortgages staved off drops in housing prices and home ownership rates at relatively low ex post cost to taxpayers the reconstruction finance corporation s loans to banks and railroads appear to have had little positive impact although the banks were aided when the rfc took ownership stakes

intra firm bargaining under non binding contracts we present a new methodology for studying the problem of intra firm bargaining based on the notion that contracts cannot commit the firm and its agents to wages and employment we develop and analyse a general non cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party equilibrium firm profits are characterizable as both a weighted average of a neo classical non bargaining firm s profits and a generalization of shapley value for a corresponding cooperative game furthermore the resulting payoffs induce economically significant distortions in the firm s input and organizational design decisions

optimal taxation under regional inequality abstract we study how regional productivity differences and labor mobility shape optimal mirrleesian tax transfer schemes when tax schedules are not allowed to differ across regions productivity enhancing inter regional migration exerts a downward pressure on optimal marginal tax rates when regionally differentiated taxation is allowed marginal tax rates in high low productivity regions should be corrected downwards upwards relative to the benchmark without migration simulations of the productivity differences between metropolitan and other areas of the us indicate that migration affects the optimal tax transfer schedule more strongly in the regionally differentiated rather than in the undifferentiated case

transitions from home to marriage of young americans the paper examines the impact of income on the transitions between home living independently and first marriage of young americans a matching model is outlined similar to that used in theories of job search to explain the probability of marriage and living alone a multiple state multiple transition model which allows for correlated heterogeneity on the first and subsequent transitions is estimated the results show that income has a strong and significant effect the impact of unobserved heterogeneity is examined in detail the impact of the young person s earnings on the transitions is explored through simulation

liquidity risk return predictability and hedge funds performance an empirical study this article analyzes the effect of liquidity risk on the performance of equity hedge fund portfolios similarly to avramov kosowski naik and teo 2007 2011 we observe that before accounting for the effect of liquidity risk hedge fund portfolios that incor porate predictability in managerial skills generate superior performance this outperfor mance disappears or weakens substantially for most emerging markets event driven and long short hedge fund portfolios once we account for liquidity risk moreover we show that the equity market neutral and long short hedge fund portfolios alphas also entail rents for their service as liquidity providers these results hold under various robustness tests

search at wholesale auto auctions wholesale trade in used cars is conducted by ascending bid auctions with sale subject to the seller s acceptance of the winning bid one out of three times the seller rejects the bid and no trade takes place i model the seller s decision as the outcome of search and thus determined by the winning bid distribution and a reported retail price this market is ideal for testing search theory since all offers whether or not accepted are observed qualitative predictions of the theory in particular the role of the variance are confirmed the quantitative results are more ambiguous

search theoretic models of the labor market a survey we survey the literature on search theoretic models of the labor market we show how this approach addresses many issues including the following why do workers sometimes choose to remain unemployed what determines the lengths of employment and unemployment spells how can there simultaneously exist unemployed workers and unfilled vacancies what determines aggregate unemployment and vacancies how can homogeneous workers earn different wages what are the tradeoffs firms face from different wages how do wages and turnover interact what determines efficient turnover we discuss various modeling choices concerning wage determination and the meeting process including recent models of directed search

the components of the illiquidity premium an empirical analysis of u s stocks 1927 2010 this paper implements a conditional version of the liquidity adjusted capm lcapm the conditional lcapm allows for a time varying decomposition of the total illiquidity premium into a level component and three risk components the estimated average annual total illiquidity premium for us stocks 1927 2010 is 1 74 2 08 which is substantially lower than in most previous studies the contributions from illiquidity level and illiquidity risk are 1 25 1 28 and 0 46 0 83 respectively of the three illiquidity risk components risk related to the hedging of wealth shocks is the most important while commonality risk is the least important the illiquidity premia are clearly time varying with peaks in downturns and crises but with no general tendency to decrease over time the level premium and the risk premium are significantly positively correlated at around 0 35 indicating that in periods of turbulence both illiquidity cost and illiquidity risk premia tend to be high

wage differentials employer size and unemployment the unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed the unique nondegenerate equilibrium distribution of wage offers is constructed for three cases 1 identical workers and employers 2 identical employers and an atomless distribution of worker supply prices and 3 identical workers and an atomless distribution of job productivities copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

an equilibrium model of search unemployment this paper develops a simple general equilibrium model with sequential search in which a nondegenerate wage offer distribution is endogenously determined we use this model to analyze the comparati

the morphology of price dispersion this paper is a study of the shape and structure of the distribution of prices at which an identical good is sold in a given market and time period we find that the typical price distribution is symmetric and leptokurtic with a standard deviation between 19 and 36 only 10 of the variance of prices is due to variation in the expensiveness of the stores at which a good is sold while the remaining 90 is due in approximately equal parts to differences in the average price of a good across equally expensive stores and to differences in the price of a good across transactions at the same store we show that the distribution of prices that households pay for the same bundle of goods is approximately normal with a standard deviation between 9 and 14 half of this dispersion is due to differences in the expensiveness of the stores where households shop while the other half is mostly due to differences in households choices of which goods to purchase at which stores we find that households with fewer employed members pay lower prices and do so by visiting a larger number of stores rather than by shopping more frequently

optimal timing of decisions a general theory based on continuation values abstract by extending a methodology dating back to jovanovic 1982 we develop a comprehensive theory of optimal timing of decisions based on continuation value functions and operators that act on them rewards can be bounded or unbounded one advantage of this approach over standard bellman methods is that continuation value functions are smoother than value functions another is that for a range of problems the continuation value function exists in a lower dimensional space than the value function we exploit these advantages to obtain a range of new results on optimality optimal behavior and efficient computation

finite duration of unemployment insurance reservation wages and participation in the job market abstract this paper extends the theoretical analysis of the effects of unemployment insurance on the decisions of unemployed workers regarding employment and participation in the labour market it uses a job search model that considers jobs with uncertain duration and unemployment benefits that are paid only during a finite number of periods after becoming unemployed separating the incentive and disincentive effects of unemployment insurance the analysis permits us to study the impacts of several changes in the scheme of unemployment insurance on the reservation wages of unemployed workers and on their decisions relative to participation in the job market

an econometric analysis of reservation wages this paper describes an analysis of survey data on unemployed people who reported their asking wage and the wage they expected to earn we show that if agents behavior is described by the standard optimal job search model one can use these data to deduce structural parameters rather than estimate them and we report our deductions from two surveys 1 of british unemployed people

job search stigma effect and escape rate from unemployment this article formulates job search models incorporating certain types of the stigma effect of unemployment it is assumed that the probability of getting a job offer given the unemployment individual contacts the firm is influenced by the duration of unemployment and is justified in a signaling context the optimal search is analyzed for one sector as well as across several independent labor market segments it is shown that there are reasonably general conditions on the search environments for which both the individual reservation wage and escape rate are negative duration dependent a fact observed in empirical studies

immigrants minorities and labor market competition this paper investigates the extent of labor market competition among immigrants minorities and the native population an analysis of 1980 u s census data reveals that immigrants tend to be substitutes for some labor market groups and complements for others the effects of shifts in immigrant supply on the earnings of native born men are however very small on the other hand increases in the supply of immigrants do have a sizable impact on the earnings of immigrants themselves an increase of 10 percent in the supply of immigrants for example reduces the immigrant wage by about 10 percent

number of sellers average prices and price dispersion abstract a variety of models provide differing predictions regarding the effect of an increase in the number of competitors in a market seller density on prices and price dispersion we review different approaches to generating equilibrium price dispersion and then empirically estimate the relationship between seller density average product price and price dispersion in the retail gasoline industry using four unique gasoline price data sets controlling for station level characteristics we find that an increase in station density consistently decreases both price levels and price dispersion across four geographical areas

the enduring impact of the american dust bowl short and long run adjustments to environmental catastrophe the 1930 s american dust bowl was an environmental catastrophe that greatly eroded sections of the plains analyzing new data collected to identify low medium and high erosion counties the dust bowl is estimated to have immediately substantially and persistently reduced agricultural land values and revenues during the depression and through at least the 1950 s there was limited reallocation of farmland from activities that became relatively less productive agricultural adjustments such as reallocating land from crops to livestock recovered only 14 to 28 of the initial agricultural cost the economy adjusted predominately through migration rather than through capital inows and increased industry

equilibrium price distributions equilibrium price distributions for a homogeneous product consistent with individual incentives are investigated they arise in informationally imperfect markets in which the only primitive datum is the distribution of search costs it is shown that single multi and continuous price distributions are all viable long run phenomena depending on the nature of search costs a method for computing equilibrium price distributions is also provided jevons law of one price has long been an accepted dictum in economic theory in a classroom presentation it still serves sometimes implicitly as a major premise in many micro models of market interaction much of the descriptive theory as well as welfare analysis hinges on this assumption yet one s day to day experience reveals that price differentials are a viable phenomenon and that looking for lower prices may very well be a rewarding activity the prospects of eventually hitting a bargain and the resulting price reduction would more than compensate for the cost incurred during the search process moreover the existence of price dispersions appear to be an empirically stable phenomenon snapshots of markets for relatively homogeneous products reveal substantial and recurring price differentials stigler 1961 and pratt wise and zeckhauser 1979 for example report some evidence supporting this claim an important article by stigler 1961 focused economists attention on the crucial role played by the informational structure of markets it gave rise to the study of the

radio s impact on public spending if informed voters receive favorable policies then the invention of a new mass medium may affect government policies since it affects who is informed and who is not these ideas are developed in a voting model the model forms the basis for an empirical investigation of a major new deal relief program implemented in the middle of the expansion period of radio the main empirical finding is that u s counties with many radio listeners received more relief funds more funds were allocated to poor counties with high unemployment but controlling for these and other variables the effects of radio are large and highly significant

the labor demand was downward sloping disentangling migrants inflows and outflows 1929 1957 this paper studies in and out migration from the u s during the first half of the twentieth century and assesses how these flows affected state level labor markets it shows that out migration positively impacted the earnings growth of remaining workers while in migration had a negative impact hence immigrant arrivals were substitutes of the existing workforce while out migration reduced the competitive pressure on labor markets

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

learning about the arrival of sales abstract we analyse optimal stopping when the economic environment changes because of learning a primary application is optimal selling of an asset when demand is uncertain the seller learns about the arrival rate of buyers as time passes without a sale the seller becomes more pessimistic about the arrival rate when the arrival of buyers is not observed the rate at which the seller revises her beliefs is affected by the price she sets learning leads to a higher posted price by the seller when the seller does observe the arrival of buyers she sets an even higher price

the impact of immigration why do studies reach such different results we classify the empirical literature on the wage impact of immigration into three groups where studies in the first two groups estimate different relative effects and studies in the third group estimate the total effect of immigration on wages we interpret the estimates obtained from the different approaches through the lens of the canonical model to demonstrate that they are not comparable we then relax two key assumptions in this literature allowing for inelastic and heterogeneous labor supply elasticities of natives and the downgrading of immigrants downgrading occurs when the position of immigrants in the labor market is systematically lower than the position of natives with the same observed education and experience levels downgrading means that immigrants receive lower returns to the same measured skills than natives when these skills are acquired in their country of origin we show that heterogeneous labor supply elasticities if ignored may complicate the interpretation of wage estimates and particularly the interpretation of relative wage effects moreover downgrading may lead to biased estimates in those approaches that estimate relative effects of immigration but not in approaches that estimate total effects we conclude that empirical models that estimate total effects not only answer important policy questions but are also more robust to alternative assumptions than models that estimate relative effects

native internal migration and the labor market impact of immigration this paper presents a theoretical and empirical study of how immigration influences the joint determination of the wage structure and internal migration behavior for native born workers in local labor markets using data from the 1960 2000 decennial censuses the study shows that immigration is associated with lower in migration rates higher out migration rates and a decline in the growth rate of the native workforce the native migration response attenuates the measured impact of immigration on wages in a local labor market by 40 to 60 per cent depending on whether the labor market is defined at the state or metropolitan area level

declining reservation wages and learning empirical studies of job search strongly suggest that the reservation wages of unemployed job seeking individuals decline with the length of their respective unemployment spells previous explanations of this behaviour based on age effects liquidity constraints and limited unemployment benefits are not adequate we provide a new answer to this question based on the reasonable assumption that workers do not have precise knowledge of the distribution of the prevailing wages an individual model of job search and learning is formulated it is shown that the declining trend of reservation wages naturally arises due to the selection process when search costs are not too small the example of a normal wage offer distribution is analysed and the implications are discussed

constrained by hours and restricted in wages the quality of matches in the labor market this paper examines the explicit loss born by workers who face constraints in their working hours by analyzing differences in actual and desired hours and wages men tend to be underemployed while women are evenly split between over and underemployment losses in surplus are generally small but 10 of underemployed men and women experience losses of more than 34 or 50 of surplus respectively the loss measure is also an important determinant in predicting labor market transitions meaning increases in surplus losses generate a higher probability of changing from workers present jobs or changing the number of hours jel j22 j41

group learning wage dispersion and non stationary offers can differences in equilibrium beliefs among otherwise identical individuals account for a substantial degree of wage inequality this paper shows that this is possible if two conditions are met first people learn about the distribution of wage offers from the experience of their peers and second people believe that wage offers are stationary even though offers that arrive later tend to have higher wages than offers that arrive earlier peer groups can then end up with different stable beliefs that lead to intergroup wage differences the non stationarity of offers is rationalized in a model where firms can either advertise their job openings or not and where advertised ones have more influence on more inexperienced job searchers a statistic is proposed whose application to existing studies suggests that the non stationarity considered here is present in data

shirking or stochastic productivity in major league baseball reply firms produce in an uncertain environment the long literature on the theory of the firm under uncertainty has focused on demand uncertainty 4 18 14 the unanimity question 8 15 or technological uncertainty 23 1 7 regarding the latter an interesting question is how that randomness enters the technology one source might be purely unpredictable factors such as the weather or accidents agricultural output for instance is dependent not only on the quantity of inputs hired but on the amount of rainfall natural disasters and the like a different source of technical uncertainty is variations in the quality and reliability of the input services hired in professional sports for example the performance of an athlete varies from game to game and season to season the reliability of capital a crucial issue in nuclear power generation is another example reflecting the stochastic nature of input productivity one economic consequence of this randomness of productivity is that an employer cannot know a priori the input s value but rather must form an estimate of its expected marginal contribution spence 20 showed how an employer uses signals such as educational attainment to determine if a worker is worth hiring once hired the firm still faces the difficulty of determining if a below average realization of productivity resulted from shirking by the employee or a bad draw from his productivity distribution this agency problem outlined in detail by alchain and demsetz 1 and holmstrom 10 has important implications to our perception of work effort especially in the presence of long term labor contracts allegations of shirking due to long term job security have been associated with seniority rights professional athletes and in the academic institution of tenure

employment and unemployment in the 1930s the great depression is to economics what the big bang is to physics as an event the depression is largely synonymous with the birth of modern macroeconomics and it continues to haunt successive generations of economists with respect to labor and labor markets these facts evidently include wage rigidity persistently high unemployment rates and long term joblessness traditionally aggregate time series have provided the econometric grist for distinguishing explanations of the great depression recent research on labor markets in the 1930s however has shifted attention from aggregate to disaggregate time series and towards microeconomic evidence this shift in focus is motivated by two factors first disaggregated data provide many more degrees of freedom than the decade or so of annual observations associated with the depression and thus may prove helpful in distinguishin g macroeconomic explanations second disaggregation has revealed aspects of economic behavior hidden in the time series that may be essential to their proper interpretation and in any case are worthy of study in their own right although the substantive findings of recent research are too new to judge their permanent significance i believe that the shift towards disaggregated analysis is an important contribution the paper begins by reviewing the conventional statistics of the united states labor market during the great depression and the paradigms to explain them it then turns to recent studies of employment and unemployment using disaggregated data of various types the paper concludes with discussions of

why has regional income convergence in the u s declined the past thirty years have seen a dramatic decrease in the rate of income convergence across states and in population flows to wealthy places these changes coincide with 1 an increase in housing prices in productive areas 2 a divergence in the skill specific real returns to living in productive places 3 a redirection of low skilled migration and 4 diminished human capital convergence due to migration we develop a model where falling housing supply elasticity and endogenous labor mobility generates these patterns using a new panel measure of housing supply regulations we demonstrate the importance of this channel income convergence continues in less regulated places while it has stopped in more regulated places

the pricing of systematic liquidity risk empirical evidence from the us stock market abstract in this study we examine whether aggregate market liquidity risk is priced in the us stock market we define a bivariate garch 1 1 in mean specification for the market portfolio excess returns and the changes in the standardized number of shares in the s p 500 index the aggregate market liquidity proxy the findings based on monthly data suggest that systematic liquidity risk is priced in the us over the period january 1973 december 1997 the liquidity premium represents a non negligible negative and time varying component of the total market risk premium whose magnitude is not influenced by the october 87 crash

self selection and the earnings of immigrants this paper analyzes the way in which the earnings of the immigrant population may be expected to differ from the earnings of the native population because of the endogeneity of the decision to migrate the empirical study shows that differences in the u s earnings of immigrants with the same measured skills but from different home countries are attributable to variations in political and economic conditions in the countries of origin at the time of migration excerpt

equilibrium price dispersion in retail markets for prescription drugs this study seeks to establish the empirical importance of price dispersion due to costly consumer search by examining retail prices for prescription drugs posted prices in two geographically distinct markets are shown to vary considerably across pharmacies within the same market even after one controls for variation due to pharmacy differences pharmacy heterogeneity accounts for at most one third of the observed price dispersion the empirical analysis hinges on the observation that consumers incentives to price shop depend on characteristics of the drug therapy cross sectional patterns in price distributions across drugs are consistent with the predictions of a search model prices for repeatedly purchased prescriptions for which the expected benefits of search are highest exhibit significant reductions in both dispersion and price cost margins

search price setting and inflation a model of monopolistic competition in an inflationary environment is developed which embodies optimal sequential search price dynamics and entry on the part of consumers and firms respectively equilibrium price strategies are s s these bounds increase continuously with consumer search costs and so does price dispersion indeed the whole equilibrium varies smoothly from the competitive bertrand to the monopolistic diamond 1971 end of the spectrum the latter s paradoxical result is explained as a limiting case where frictions on firms side of the market price adjustment costs but not on buyers search costs tend to zero a positive relationship between smooth and perfectly anticipated inflation and price dispersion or uncertainty is established

brand extension as informational leverage the marketing literature refers to the concept of brand capital and provides empirical evidence that firms with a large stock of well established brands have an advantage in introducing new products this paper develops a theory of brand extension as a mechanism for informational leverage in which a firm leverages off a good s reputation in one market to alleviate the problem of informational asymmetry encountered in other markets it is shown that brand extension helps a multi product monopolist introduce a new experience good with less price distortion thus the paper provides a theoretical foundation for the concept of brand capital

the effect of redistribution on migration evidence from the israeli kibbutz this paper tests a key theoretical prediction of public finance that local redistribution induces sorting of the population so that less productive individuals are located in communities with more redistribution specifically i use a longitudinal data set to test whether and to what extent the intensive redistribution practiced by israeli kibbutzim encourages exit of more productive individuals and entry of less productive ones the findings support the theoretical prediction kibbutz leavers are more skilled than both stayers and other rural migrants and they earn higher wages upon exit than observably similar city natives and other migrants in contrast individuals who earn lower wages in the city are more likely to enter a kibbutz but they are not more likely to move to other rural areas these findings also support borjas hypothesis that migrants self selection depends on the difference in returns to skills between the origin and the destination

the effect of weather induced internal migration on local labor markets evidence from uganda relying on census data collected in 2002 and historical weather data for uganda this paper estimates the impact of weather induced internal migration on the probability for non migrants living in the destination regions to be employed consistent with the prediction of a simple theoretical model the results reveal a larger negative impact than the one documented for developed countries they further show that this negative impact is significantly stronger in ugandan regions with lower road density and therefore less conducive to capital mobility a 10 percentage points increase in the net in migration rate in these areas decreases the probability of being employed of non migrants by more than 10 percentage points

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

deleveraging crises and deep recessions a behavioural approach macroeconomic dynamics are characterized by alternating patterns of periods of relative stability and large swings standard micro founded macro economic models account for these patterns through exogenous and persistent shocks in this paper we develop a fully decentralized and micro founded macro economic agent based model augmented with an opinion model which produces endogenous waves of pessimism and optimism that feed back into firms leverage and households precautionary saving behaviour a major emergent property of our model is precisely the complex successions of stable and unstable macro economic regimes the model is further able to account for a wide spectrum of macro and micro empirical regularities within this framework we analyse a series of macro economic phenomena of key relevance in the current macro economic debate especially the occurrence of deleveraging crises and fisherian debt deflation recessions our analysis suggests that the relative dynamics of prices and wages and the resulting income distribution along a deflation ary path are critical determinants of the severity of the recession and the chances of recovery

the q s s pricing rule we introduce menu costs in the search theoretic model of imperfect competition of burdett and judd when menu costs are not too large the equilibrium is such that sellers follow a q s s pricing rule according to the rule a seller lets inflation erode the real value of its nominal price until it reaches some point s then the seller pays the menu cost and resets the real value of its nominal price to a point randomly drawn from a distribution with support s q where s s q a q s s equilibrium differs with respect to a standard s s equilibrium 1 in a q s s equilibrium sellers sometimes keep their nominal price constant to avoid paying the menu cost other times because they are indifferent to changes in the real value of their price an exploratory calibration reveals that menu costs account less than half of the observed duration of nominal prices 2 in a q s s equilibrium higher inflation leads to higher real prices as sellers pass onto buyers the cost of more frequent price adjustments and to lower welfare

labour market responses to immigration evidence from internal migration driven by weather shocks we study the labour market impact of internal migration in indonesia by instrumenting migrant flows with rainfall shocks at the origin area estimates reveal that a one percentage point increase in the share of migrants decreases income by 0 97 and reduces employment by 0 24 percentage points these effects are different across sectors employment reductions are concentrated in the formal sector while income reduction occurs in the informal sector negative consequences are most pronounced for low skilled natives even though migrants are systematically highly skilled we suggest that the two sector nature of the labour market may explain this pattern

alternative theories of wage dispersion abstract we analyze labor market models where the law of one price fails i e models with equilibrium wage dispersion we begin considering ex ante heterogeneous workers but highlight a problem with this approach if search is costly the market shuts down we then assume homogeneous workers but ex post heterogeneous matches this model is robust to search costs and delivers equilibrium wage dispersion however we prove that the law of two prices holds equilibrium implies at most two wages we explore other models including one combining ex ante and ex post heterogeneity which is robust and delivers more realistic wage dispersion

price dispersion and demand uncertainty evidence from u s scanner data i use the prescott 1975 hotels model to explain variations in price dispersion across items sold by supermarkets in chicago the effect of demand uncertainty on price dispersion is highly significant and quantitatively important my estimates suggest that more than 40 of the cross sectional standard deviation of log prices is due to demand uncertainty i also find that price dispersion measures are negatively correlated with the average price but are not negatively correlated with the revenues from selling the good across stores and weeks and with the number of stores that sell the good temporary sales are modeled as a reaction to unwanted inventories that are accumulated when the realization of demand is low the effect of demand uncertainty on the frequency of temporary sales is also highly significant and quantitatively important items with more demand uncertainty tend to accumulate unwanted inventories more often and tend to have temporary sales more often

self confirming price dispersion in monetary economies abstract in a monetary economy we show that price dispersion arises as an equilibrium outcome without the need for costly simultaneous search or any heterogeneity in preferences production costs or search technologies a distribution of money holdings among buyers makes sellers indifferent across a set of posted prices leading to a non degenerate price distribution this price distribution in turn makes buyers indifferent across a range of money balances rationalizing the non degenerate distribution of money holdings we completely characterize the distribution of posted prices and money holdings in any equilibrium equilibria with price dispersion admit higher maximum prices than observed in any single price equilibrium and feature an increasing density of prices in contrast to existing theories price dispersion reduces welfare by creating mismatch between posted prices and money balances inflation exacerbates this welfare loss by shifting the distribution towards higher prices

real time search in the laboratory and the market the standard model of labor market search posits repeated infinite horizon search from a fixed distribution of wages in a stationary environment under these circumstances the optimal search policy has a reservation wage property i e the decision to accept an offer involves a comparison of the offer with a time invariant constant w which itself is a function of the parameters characterizing the search environment a wage offer greater than or equal to w is accepted while any other is rejected and search is continued some early empirical job search studies however accumulated evidence of a declining trend in reservation wages over the course of an unemployment spell 1 since then several theoretical explanations for the declining reservation wage profiles have emerged all of which relax the stationarity assumption of the standard model for example reuben gronau 1971 assumes searchers have finite lives kenneth burdett 1977 gerard j van den berg 1990 james albrecht and susan vroman 2005 and others model short term unemployment benefits albrecht pieter a gautier and vroman 2006 permit directed search to heterogeneous prospects 2 john p danforth 1979 and silvio rendon 2006 consider general liquidity con strained search and burdett and tara vishwanath 1988 model learning about the job offer distribution behavioral explanations for declining reservation wages have been suggested by braunstein and schotter 1981 schotter and braunstein 1982 and others in this paper we present the results of the first ever to our knowledge real time search laboratory experiment performed in an effort to investigate this falling res ervation wage phenomenon where field studies of unemployed search often rely on strong identifying assumptions to recover searchers unobservable reservation wages in the laboratory we are able to elicit subjects complete reservation wage profiles in an incentive compatible manner 3 further in the laboratory we are able to

the effect of internal migration on local labor markets american cities during the great depression the great depression offers a unique laboratory to investigate the causal impact of migration on local labor markets we use variation in the generosity of new deal programs and extreme weather events to instrument for migrant flows to and from u s cities in migration had little effect on the hourly earnings of existing residents instead in migration prompted some residents to move away and others to lose weeks of work or access to relief jobs for every 10 arrivals we estimate that 1 9 residents moved out 2 1 were prevented from finding a relief job and 1 9 shifted from full time to part time work

price setting price dispersion and the value of money or the law of two prices abstract we study models combining search money price posting and preference shocks we show how these features interact to influence the price level and price dispersion first price posting equilibria exist with valued fiat currency second although both are possible price dispersion is more common than a single price third we prove that generically there cannot be more than two prices we provide intuition for this law of two prices show it also holds in some nonmonetary search models and discuss variations of the assumptions under which it may not hold

an equilibrium theory of learning search and wages we propose an equilibrium theory of learning from search in the labor market which addresses the search behavior of workers the creation of jobs and the determination of wages as functions of labor market histories in the model each worker has incomplete information about his job finding ability and learns about it from his search outcomes the theory formalizes a notion akin to discouragement over each uninterrupted unemployment spell unemployed workers update their beliefs about their job finding abilities downward and reduce their desired wages one contribution of the paper is to integrate learning from search into an equilibrium framework by inducing endogenous heterogeneity in workers beliefs learning from search provides a novel explanation for a set of related empirical observations about the labor market including unemployment duration dependence and wage dispersion another contribution is to apply lattice theoretic techniques to analyze learning from experience which is useful because learning generates convex value functions and in principle multiple solutions to a worker s optimization problem

job separation in a non stationary search model a structural estimation to evaluate alternative unemployment insurance systems this paper considers a job search model in which the environment is not constant throughout the unemployment spell and where jobs do not last for ever in this situation reservation wages can be lower than they would be in a model without consideration of such separations but they can initially be higher precisely because of the non constant environment the model is estimated structurally by using spanish data for the period 1985 1996 the main finding is that after controlling for unobserved heterogeneity the unemployment hazard rate is almost flat during the first six months however after this duration the highly decreasing job offer arrival rate comes to be the only significant factor given that acceptance probabilities become equal to one the estimated parameters are used to evaluate different unemployment insurance designs we conclude that a non monotonic pattern in unemployment benefits joint with a tax paid by workers and based on unemployment duration makes this duration 13 2 lower than it currently is in spain copyright 2006 john wiley sons ltd

modeling asymmetric comovements of asset returns existing time varying covariance models usually impose strong restrictions on how past shocks affect the forecasted covariance matrix in this article we compare the restrictions imposed by the four most popular multivariate garch models and introduce a set of robust conditional moment tests to detect misspecification we demonstrate that the choice of a multivariate volatility model can lead to substantially different conclusions in any application that involves forecasting dynamic covariance matrices like estimating the optimal hedge ratio or deriving the risk minimizing portfolio we therefore introduce a general model which nests these four models and their natural asymmetric extensions the new model is applied to study the dynamic relation between large and small firm returns article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies