efficient search on the job and the business cycle the paper develops a model of directed search on the job in which transitions of workers between unemployment and employment and across employers are driven by heterogeneity in the quality of firm worker matches the equilibrium is such that the agents value and policy functions are independent of the endogenous distribution of workers across employment states hence the model can be solved outside of the steady state and used to measure the effect of cyclical productivity shocks on the labor market productivity shocks are found to generate large fluctuations in workers transitions unemployment and vacancies when matches are experience goods but not when matches are inspection goods

premuneration values and investments in matching markets we analyze a model in which agents make investments and then match into pairs to create a surplus the agents can make transfers to reallocate their pretransfer ownership claims on the surplus mailath postlewaite and samuelson 2013 showed that when investments are unobservable equilibrium investments are generally inecient in this paper we work with a more structured model that is suciently tractable to analyze the nature of the investment ineciencies we provide conditions under which investment is ineciently high or low and conditions under which changes in the pretransfer ownership claims on the surplus will be pareto improving as well as examine how the degree of heterogeneity on either side of the market aects investment eciency

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

bribes lobbying and development paign contributions or influence buying through other means as an activity that is aimed at changing existing rules or policies we view bribery in contrast as an attempt to bend or get around existing rules or policies the analysis contrasts these two means of influencing politics we use the labels lobbying and bribery for convenience and not because they are perfect defini tions for the two rent seeking activities we study in reality bribery and lobbying differ in several di mensions first lobbying is a legal and regulated activ ity in many countries whereas bribery is not second a change in the rules as a result of lobbying often af fects an entire industry whereas the return to bribery is more firm specific third a government that ponders a change in the rules might have quite different concerns than a bureaucrat considering a bribe our model cap tures all these differences possibly the most important difference however and the driving assumption in the model is that bending the rules is only temporary bu reaucrats can seldom commit to not asking for bribes in the future because corrupt deals are not enforceable in courts and because firms deal with different officials over time a legislative change on the other hand al ters the status quo and is therefore likely to last longer although policies and politicians also change over time our key assumption is that changing the rules is long lasting relative to bending them 2

pre emptive corruption hold up and repeated interactions this paper analyses repeated interactions between a firm and an inspector who monitors regulatory compliance the firm may offer a bribe to pre empt the inspection corruption is unfeasible in the one shot game because of inspector hold up in an infinitely repeated game we characterize the set of bribes that can be sustained as equilibrium paths using the trigger strategy in this model the most likely bribe givers are not the firms that benefit the most from the illegal behaviour furthermore strengthening anti corruption policies has ambiguous welfare effects because it improves compliance only among a subset of firms and increases monitoring effort

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

the role of wages and auditing during a crackdown on corruption in the city of buenos aires abstract we study the prices paid for basic inputs during a crackdown on corruption in the public hospitals of the city of buenos aires argentina during 1996 97 we find a well defined negative effect on the measures used to capture corruption prices paid by hospitals for basic homogeneous inputs decrease by 15 percent during the first 9 months of the crackdown after this period prices increase but they are still 10 percent lower than those prevailing before the crackdown relative to the precrackdown period higher wages play no role in inducing lower input prices when audit intensity can be expected to be maximal during the first phase of the crackdown but have a negative and well defined effect when audit intensity takes intermediate levels the last phase of the crackdown controlling for fixed effects we find that the wage elasticity of input prices exceeds 20 these results are consistent with the standard model of bribes of gary becker and george stigler

planning under incomplete information and the ratchet effect abstract central planning of production is usually performed under asymmetric information the firm in general has more information about its productive possibilities than the central planner from now on for short cp this justifies the use of incentives schemes in which the cp does not directly fix activity levels casual observation of such existing schemes suggests that the time dimensions is crucial for their working typically the cp revises the incentive scheme over time to take into account the information provided by the firm s performance managers of centrally planned economies as well as economists have long recognized that this revision induces firms to underproduce in order to avoid demanding schemes in the future this is the ratchet effect it is purpose of the present paper to study the ratchet effect under the non commitment assumption which we believe to be more realistic the inadequacy of conceptual tools made if difficult in the past to consider such an assumption now basic research on dynamic games with incomplete information recently resulted in new ideas which look particularly relevant for a theoretical analysis of the problem

competing through information provision this paper studies the symmetric equilibria of a two buyer two seller model of directed search in which sellers commit to information provision more informed buyers have better differentiated private valuations and extract higher rents from trade when sellers cannot commit to sale mechanisms information provision is higher under competition than under monopoly in contrast when sellers commit to both information provision and sale mechanisms i identify simple conditions under which sellers post auctions and provide full information in every equilibrium ensuring that all equilibrium outcomes are constrained efficient sellers capture the efficiency gains from increased information and compete only over non distortionary rents offered to buyers

does microfinance reduce poverty in bangladesh new evidence from household panel data abstract the study examines whether loans from microfinance institutions mfi reduce poverty in bangladesh drawing upon the nationally representative household panel with four rounds from 1997 to 2004 the effects of general microfinance loans and loans for productive purposes on income food consumption and women s body mass index are estimated overall effects of mfi loans on income and food consumption were positive and the purpose of the loan is important in predicting which household welfare indicator is improved alternative estimation methods confirm a positive impact of mfi loans on food consumption growth which supports the poverty reducing effects of microfinance in bangladesh

wage vacancy contracts and coordination frictions abstract we consider a directed search model with risk averse workers and risk neutral entrepreneurs who can set up firms that post wage vacancy contracts i e contracts where firms can make payments to more than one applicant and where the payments can be different for each applicant and be contingent on the number of applicants we establish that the type of contracts the literature focuses on are not offered if firms can post wage vacancy contracts we show that there exists an equilibrium satisfying a monotonic expected utility property which is efficient furthermore we investigate the role of wage vacancy contracts on welfare and competition

extortion and political risk insurance we consider the problem faced by firms operating in a foreign country characterized by weak governance our focus is on extortion based on the threat of expropriation and bureaucratic harassment the bureaucrat s bargaining power is characterized by a general extortion mechanism adapted from the optimal auction theory in myerson 1981 this characterization is used to analyze the determinants of the quality of governance and whether and how this is improved by political risk insurance this insurance reduces the bureaucrat s total revenue from corruption but may also increase the risk of expropriation and extortion bribes the analysis allows us to derive some policy recommendations with respect to public intervention in the political risk insurance sector

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

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

second sourcing as a commitment monopoly incentives to attract competition we show that a new product monopolist may benefit from delayed competition if consumers incur setup costs setup costs create a dynamic consistency problem the monopolist cannot guarantee low future prices once customers have incurred those costs we show that if customers anticipate this problem the monopolist s profits can be improved through ex ante commitment to competition in the post adoption market if setup costs are large if setup costs are small the monopolist can typically achieve the same level of profits without price commitment as with

directed search for equilibrium wage tenure contracts i analyze the equilibrium in a labor market where firms offer wage tenure contracts to direct the search of employed and unemployed workers each applicant observes all offers and there is no coordination among individuals workers applications as well as firms recruiting decisions are optimal this optimality requires the equilibrium to be formulated differently from the that in the literature of undirected search i provide such a formulation and show that the equilibrium exists in the equilibrium individuals explicitly tradeoff between an offer and the matching rate at that offer this tradeoff yields a unique offer which is optimal for each worker to apply and applicants are separated endogenously according to their current values despite such uniqueness and separation there is a non degenerate and continuous wage distribution of employed workers in the stationary equilibrium the density of this distribution is increasing at low wages and decreasing at high wages in all equilibrium contracts wages increase with tenure which results in quit rates to decrease with tenure moreover the model makes novel predictions about individuals job to job transition and comparative statics

bribery inefficiency and bureaucratic delay abstract we examine bribery in a dynamic setting with a partially honest bureaucracy the presence of honest officials lowers the bribe that a corrupt official can extract from efficient applicants consequently efficient applicants may face delays in receiving licenses or may never receive licenses as inefficient applicants are serviced ahead of them an increase in the proportion of honest officials while directly increasing the incidence of socially optimal decisions can also induce greater inefficiencies misallocation and delay from corrupt officials as a result social welfare may be non monotonic in the proportion of honest officials and small differences in monitoring costs may lead to very different levels of corruption competition between officials can hurt efficiency its desirability depends on the prevalence of applicants ability to pay bribes

the dynamics of corruption with the ratchet effect this paper provides a simple model of corruption dynamics with the ratchet effect as in shleifer and vishny 1993 we consider the sale of government property entry permit by government officials as the prototype of corruption activities in a dynamic version of the shleifer vishny model corrupt officials have ex post the incentive to price discriminate entrepreneurs based on the entry decisions made in an earlier period we show that the inability of government officials to commit to future money demands induces the ratchet effect in that entrepreneurs have incentives to delay entry in order to receive a discount in the permit price later the ex post opportunism erodes the official s extortion power and reduces his revenues from selling permits even though the dynamic setting leaves the corrupt official with less extortion power we cannot rule out the possibility that the official s ability to apply dynamic discrimination decreases the intertemporal aggregate social welfare we also explore the effect of the official s tenure stability on the extent of corruption this allows us to identify circumstances under which the often observed practice of job rotation can help mitigate corruption

job transfers and incentives in complex organizations thwarting the ratchet effect many complex organizations such as planned soviet enterprises and the u s military routinely transfer employees between jobs since this sacrifices job specific human capital the practice is puzzling this article shows that regular job transfers may be part of an optimal incentive scheme in organizations plagued by the ratchet effect the ratchet effect arises when an employer is uncertain as to the productivity of the various positions or jobs within an organization workers in highly productive jobs then have an incentive to disguise the productivity of their jobs by expending low effort and producing low output this avoids having the employer construct more demanding remuneration schemes once the high productivity of a job becomes known job transfers break the link between current performance and future incentive schemes and hence remove the incentive stifling implications of the ratchet effect this article examines the tradeoff between providing more effective incentives via job transfers and the accompanying sacrifice of job specific human capital establishes conditions under which job transfers are optimal and develops comparative static results

class systems and the enforcement of social norms abstract we analyze a model in which there is socially inefficient competition among people in this model self enforcing social norms can potentially control the inefficient competition however the inefficient behavior often cannot be suppressed in equilibrium among those with the lowest income due to the ineffectiveness of sanctions against those in the society with the least to lose we demonstrate that in such cases it may be possible for society to be divided into distinct classes with inefficient behavior suppressed in the upper classes but not in the lower

money for nothing politicians rent extraction and political extortion introduction the model 1 background the economic theory of regulation 2 rent extraction the theory of political extortion demonstrations 3 observing extortion the practice of rent extraction 4 validating the model empirical tests of rent extraction 5 contracting for rent preservation the durability problem extensions 6 extraction and optimal taxation excises earmarked taxes and government user charges 7 costs and benefits of interest group organization 8 improving the model worthy yet unanswered questions notes references index

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

what is the role of the asking price for a house abstract this paper considers the role of the asking price in housing transactions both theoretically and empirically significant fractions of housing transactions involve sales prices that are either below or above asking price which might suggest that asking price has limited relevance however many housing transactions involve a sales price exactly equal to asking price a fact that has previously drawn little notice strongly suggesting that asking price does matter the paper develops a model where asking price is neither a binding commitment nor a ceiling yet still directs buyer search and impacts sales price using novel survey data the paper provides empirical evidence consistent with asking price playing a directing role in buyer search consistent with theory this effect is stronger for more atypical houses and in bust markets

do good workers hurt bad workers or is it the other way around i study the effect of worker heterogeneities on wages and unemployment in a directed search model a worker s productivity in a given firm depends both on his type and on a worker firm specific component firms advertise unconditional wage offers only the resulting equilibrium is inefficient with a too high wage premium for high type workers and too few high type jobs this reduces the welfare of high type workers my findings contrast with the findings in the literature on labor market segmentation where it is argued that the existence of high type workers forces down wages and reduces welfare for low type workers

pollution shadow economy and corruption theory and evidence abstract we study how the shadow economy affects pollution and how this effect depends on corruption levels in public administration production in the shadow economy allows firms to avoid environmental regulation policies a large informal sector may be accompanied by higher pollution levels our theoretical model predicts that controlling the levels of corruption can limit the effect of the shadow economy on pollution we use panel data covering the period from 1999 to 2005 in more than 100 countries to test this theoretical prediction our estimates confirm that the relationship between the shadow economy and the levels of pollution are dependent on the levels of corruption our results hold when we control for the effects of other determinants of pollution time varying common shocks country fixed effects and various additional covariates

the dynamics of incentive contracts the paper studies a simple two period principal agent model in which the principal updates the incentive scheme after observing the agent s first period performance the agent has superior information about his ability the principal offers a first period incentive scheme and observes some measure of the agent s first period performance cost or profit which depends on the agent s ability and unobservable first period effort the relationship is entirely run by short term contracts in the second period the principal updates the incentive scheme and the agent is free to accept the new incentive scheme or to quit the strategies are required to be perfect and updating of the principal s beliefs about the agent s ability follows bayes rule the central theme of the paper is that the ratchet effect leads to much pooling in the first period first for any first period incentive scheme there exists no separating equilibrium second when the uncertainty about the agent s ability is small the optimal scheme must involve a large amount of pooling the paper also gives necessary and sufficient conditions for the existence of partition equilibria and looks at the effect of cost uncertainty

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

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

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

search and the efficient assignment of workers to jobs in a model in which different types of workers form matches with different types of employers a method of calculating opportunity costs of workers and jobs is derived these are shown to differ systematically from the reservation wages and profits used by workers and employers to determine whether matches should be formed ex ante differences among workers and among jobs then generate externalities in the labor market resulting in inefficient assignments of workers to jobs and multiple equilibria intervention in the labor market by altering the assignment can increase aggregate output but may cause regressive redistribution copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

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

coordination matching and wages we analyse the coordination problem in the labour market by endogenizing the matching function and the wage share each firm posts a wage to maximize the expected profit anticipating how the wage affects the expected number of applicants in equilibrium workers apply to firms with mixed strategies which generate coordination failure and persistent unemployment we show how the wage share unemployment and the welfare loss from the coordination failure depend on the market tightness and the market size the welfare loss from the coordination failure is as high as 7 5 per cent of potential output jel classification c78 j64 les auteurs analysent le probleme de la coordination dans le marche du travail en endogeneisant la fonction arrimage et la part des revenus qui va aux salaires chaque entreprise definit le niveau de salaire qui maximise ses profits anticipes en tenant compte de l effet de ce niveau de salaire sur le nombre des applications qu elle peut anticiper de meme les travailleurs font application aupres d une entreprise a un salaire donne en tenant compte d une certaine relation d equivalence entre niveau de salaire et probabilite d obtenir l emploi voila qui engendre incoordination et chomage persistant on montre que la part des revenus qui revient aux salaires le niveau de chomage et les pertes de bien etre attribuables au manque de coordination dependent de la taille du marche et du degre de rarete de la main d oeuvre les pertes de bien etre attribuables au manque de coordination correspondent a quelques 7 5 pour cent de la production potentielle

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

the dynamics of micro and small enterprises in developing countries abstract the number of people engaged in micro and small enterprises increases as a result of new enterprises being started and through an expansion of existing activities as a partial offset to these increases employment declines when existing businesses cease operations this article draws on recent survey work to examine the magnitude and determinants of enterprise births closures and expansions it explores the ways in which these different sources of change are influenced by the state of the macroeconomy and examines policy and project implications

directed search on the job and the wage ladder we model a labor market where employed workers search on the job and firms direct workers search using wage offers and employment probabilities applicants observe all offers and face a trade off between wage and employment probability there is wage dispersion among workers even though all workers and jobs are homogeneous equilibrium wages form a ladder as workers optimally choose to climb the ladder one rung at a time this is because low wage applicants are relatively more sensitive to employment probability than to wage and thus forgo the opportunity to apply for a high wage with a lower chance of success

worker heterogeneity the job finding rate and technical change we examine the implications of changes in the skill distribution on the equilibrium matching process and the job finding rate using a directed search approach worker abilities are selected from a distribution while firms face heterogeneous entry costs and direct their job offers to workers we identify conditions under which technical progress increases or decreases the job finding rate allowing for entry and the effects of technical changes on heterogeneity we find that the effects of skill neutral technical progress on job finding rates are unambiguously non negative but the effects of skill biased changes depend on the elasticity of vacancy costs however both skill neutral and skill biased technical changes are pareto improving ex ante if all agents are risk neutral c 2014 elsevier b v all rights reserved

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

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

corruption and microenterprises in russia abstract in russia compliance with the rules and regulations that govern almost all aspects of economic life has created a hostile environment for microenterprises more serious than the regulations per se however is the potential niche they create for opportunistic behavior by regulatory authorities in russia the regulatory state has created a corrupt cadre of government bureaucrats who frequently engage in rent seeking behavior while enforcing regulations firms are not uniformly affected by corruption however this paper shows empirical evidence of differential incidence of extortion based on firm and entrepreneurial characteristics corruption in russia is similar to a regressive tax and acts as a disincentive to innovation and growth it may induce technologically inefficient production decisions and can dilute economies of scale and scope

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

holdups and efficiency with search frictions a natural holdup problem arises in a market with search frictions firms have to make a range of investments before finding their employees and larger investments translate into higher wages in particular when wages are determined by ex post bargaining the equilibrium is always inefficient recognizing that capital intensive production relations have to pay higher wages firms reduce their investments this can only be prevented by removing all the bargaining power from the workers but this in turn depresses wages below their social product and creates excessive entry of firms in contrast to this benchmark we show that efficiency is achieved when firms post wages and workers can direct their search toward more attractive offers this efficiency result generalizes to an environment with imperfect information where workers only observe a few of the equilibrium wage offers we show that the underlying reason for efficiency is not wage posting per se but the ability of workers to direct their search toward more capital intensive jobs

commitment advertising and efficiency of two sided investment in competitive search equilibrium abstract competitive search entails both commitment to and advertising of pay off relevant aspects of market participants this paper considers incrementally the implications of each in a labor market where both workers and firms invest prior to market entry a wide range of institutional arrangements are addressed within the same general framework when the characteristics of jobs or workers are advertised the efficient outcome pertains commitment without advertising typically leads to market unravelling the diamond paradox but whenever wages and human capital are advertised firms become residual claimants the private and social returns to investment coincide absent wage commitment the hosios condition implies efficiency when investments are advertised

should buyers or sellers organize trade in a frictional market to answer the question in the title this article characterizes the socially efficient organization of the market with search frictions the efficient organization depends on the relative elasticity in the supply between the two sides of the market the costs of participating in the market and organizing trade and the a symmetry in matching we also show that the social optimum can be implemented by a realistic market equilibrium where the organizers set up trading sites to direct the other side s search the results provide a unified explanation for why trade has often been organized by sellers in the goods market by buyers firms in the labor market and by both sides in the asset market the analysis also sheds light on how the efficient market organization can change with innovations such as e commerce and just in time production

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 economics of repeated extortion we provide a simple model of repeated extortion in particular we ask whether corrupt government officials opportunism to demand more once entrepreneurs have made sunk investments entails further distortion in resource allocations if the choice of technology is left to the entrepreneurs the dynamic path of demand schedules will induce entrepreneurs to pursue a fly by night strategy by adopting a technology with an inefficiently low sunk cost component the unique equilibrium is characterized by a mixed strategy of the government official in future demand our model thus explains why arbitrariness is such a central feature of extortion we also investigate implications of the stability of corrupt regimes for dynamic extortion and discuss alternative applications for our framework

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

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

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

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

bargaining with commitment choice of techniques and direct foreign investment abstract once a firm has installed a plant in a host country the country will have an incentive to reopen negotiations concerning tax rates this paper examines the incentives for the country to commit to not reopening negotiations a commitment deters the firm from inefficiently reducing the capital intensity of its investment but apparently surrenders tax revenues by not exploiting the country s post entry bargaining power we show that commitment will be optimal as long as the tax system does not place too distortionary a burden on capital and the country has access to capital markets

wage differentials discrimination and efficiency abstract i analyze a large labor market where homogeneous firms post wages to direct the search of workers who differ in productivity i show that the model has a unique equilibrium the wage differential depends positively on the workers productivity differential only when the latter is large when the productivity differential is small high productivity workers get a lower wage than low productivity workers this reverse wage differential remains even when the productivity differential shrinks to zero however the equilibrium is socially efficient high productivity workers always get the employment priority and higher expected wages than low productivity workers although discrimination in terms of expected wages does not exist conventional measures are likely to incorrectly find discrimination in the model

mises hayek and corruption using the arguments of ludwig von mises and friedrich august von hayek i argue that private ownership solves the economic problem of corruption since private ownership discourages entrepreneurs from rent seeking and privately owned media provide objective and unbiased information to citizens any legal reform establishing and enforcement of private ownership also solves the corruption problem

adaptability productivity and educational incentives in a matching model abstract we study the connections between the labour market and the education sector in a matching framework with ex post wage bargaining workers have multidimensional skills and the search market is segmented by technology education is a time consuming activity and determines jointly the scope or adaptability and intensity or productivity of individual skills we establish three main results first unemployment provides incentives to schooling by raising the need for adaptability second private returns to productivity are below social returns but no hold up phenomenon is involved third due to wage and congestion externalities private returns to adaptability exceed social returns as a consequence both over and under education may take place in equilibrium

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

efficient unemployment insurance this paper constructs a tractable general equilibrium model of search with risk aversion an increase in risk aversion reduces wages unemployment and investment unemployment insurance has the opposite effect insured workers seek high wage jobs with high unemployment risk an economy with risk neutral workers achieves maximal output without any unemployment insurance but an economy with risk averse workers requires a positive level of unemployment insurance to maximize output therefore moderate unemployment insurance not only improves risk sharing but also increases output

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

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

does competition kill corruption corrupt agents officials or gangsters exact money from firms corruption affects the number of firms in a free entry equilibrium the degree of deep competition in the economy increases with lower overhead costs relative to profits and with a tendency toward similar cost structures increases in competition may not lower corruption the model explains why a rational corrupt agent may extinguish the source of his bribe income by causing a firm to exit assessing the welfare effect of corruption is complicated by the fact that exit caused by corruption does not necessarily reduce social welfare

pricing and signaling with frictions abstract we study a market where each seller chooses the quality and price of goods and the number of selling sites observing sellers choices of prices and sites but not quality buyers choose which site to visit a seller s choices of prices can direct buyers search and signal quality a unique equilibrium exists and is separating when the quality differential is large the equilibrium implements the efficient allocation with public information otherwise the quality of goods and or the number of sites created is inefficient due to a conflict between the search directing and signaling roles of prices