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

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

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

endogenous market segmentation for lemons information asymmetry between sellers and buyers often prevents socially desirable trade this article presents a new mechanism that mitigates the inefficiencies caused by information asymmetry i consider decentralized markets under adverse selection and show that such markets can be endogenously segmented in a way that improves social welfare endogenous segmentation is driven by low quality sellers incentive to attract more buyers by separating from high quality sellers the mechanism helps us understand the roles of several real world institutions such as multiple marketplaces costless advertisements and nonbinding list prices

when is foreign aid policy credible aid dependence and conditionality the author studies foreign aid policy within a principal agent framework he shows that one reason for foreign aid s poor overall record may be a moral hazard problem that shapes the aid recipient s incentive to undertake structural reform the model s basic prediction is a two way relationship disbursements of foreign aid are guided in part by the needs of the poor anticipating this recipients have little incentive to improve the welfare of the poor preliminary econometric work shows that the data support this hypothesis in principle conditionality could partly solve this problem but only if the donor can make a binding commitment to increase disbursements in good relative to bad states without such a commitment technology aid disbursements remain guided by the needs of the poor and recipient countries maintain a low effort to reduce poverty contrary to the conventional wisdom found in the aid literature the author shows that the welfare of all parties might be improved by using tied project aid or by delegating part of the aid budget to an international agency with less aversion to poverty

evidence on changes in aid allocation criteria have donors changed their aid allocation criteria over the past three decades toward greater selectivity a frequently stated goal of the international development community using data on how 22 donors allocated their bilateral aid among 147 countries over 1970 2004 the article finds that after the fall of the berlin wall in 1989 and especially in the late 1990s bilateral aid responded more to poverty and the quality of the policy and institutional environment in the recipient countries furthermore the sensitivity of aid allocation to the country s size and its debt burden has declined over time these results are robust to different samples and model specifications various econometric techniques and alternative measures of institutional quality while the specific factors causing these changes cannot be identified these presumably include geopolitical and economic concerns and the many changes in the international aid architecture donors still differ greatly in their selectivity this suggests that further multifaceted reforms are needed to ensure even greater selectivity of aid

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

price commitment in search markets abstract this paper studies the formation of pricing rules in search markets at a cost each seller can commit himself to a fixed price if he takes no actions to preclude haggling his sales price is determined through bilateral negotiations with the buyer the selection of pricing rules exhibits strategic complementarities that may give rise to multiple equilibria differences in trading practices across countries and cultures may thus be consistent with equilibrium behavior in bazaar markets where the buyer s cost of switching sellers is relatively low most of the trade is conducted via bargaining and prices are close to the perfectly competitive outcome

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

samaritan agents on the strategic delegation of aid policy abstract should a donor delegate the responsibility for allocating its aid budget to a less inequality averse agent to alleviate the consequences of the samaritan s dilemma it is facing i show that when aid impact differs across recipients the optimal type of agent depends on whether or not committing to a greater share for countries where the productivity of aid is low raises the combined domestic incomes of recipients this is the case for donors too concerned with efficiency ex post they therefore delegate the decision on the discretionary aid allocation rule to agents more sensitive to distributional issues than themselves

comparing welfare effects of different regulation schemes an application to the electricity distribution industry abstract we compare the welfare effects of different regulation schemes of electricity distribution utilities the compared regulation schemes are fixed price regulation cost of service regulation menu of cost contingent contracts and simple menu of contracts in our calculations we utilize the information of a firm s potential to improve cost efficiency the firm specific cost information of finnish electricity distribution utilities is obtained by using various stochastic frontier models our basic result is that welfare can be improved by changing the cost of service regulation scheme to the menu of contracts regulation welfare also increases in the case of fixed price regulation and simple menu of contract regulation there is however a significant difference among regulation regimes on how this improved welfare is distributed to consumers and producers

screening in a matching market contract design under incomplete information is often analysed in a bilaterally monopolistic setting if the informed party s reservation value does not depend on its private information its type it is a standard result that the uninformed side offers low types distorted contracts to reduce the information rent left to high types we challenge this result by embedding contract design in a matching market environment we consider a market where players meet pairwise and where in each match either side may be chosen to make a take it or leave it offer as frictions become sufficiently low we find that the set of equilibria is independent of whether there is complete or incomplete information in particular all contracts are free of distortions

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

efficiency and voluntary implementation in markets with repeated pairwise bargaining we examine a simple bargaining setting where heterogeneous buyers and sellers are repeatedly matched with each other we begin by characterizing efficiency in such a dynamic setting and discuss how it differs from efficiency in a centralized static setting we then study the allocations which can result in equilibrium when the matched buyers and sellers bargain through some extensive game form we take an implementation approach characterizing the possible allocation rules which result as the extensive game form is varied we are particularly concerned with the impact of making trade voluntary imposing individual rationality on and off the equilibrium path no buyer or seller consummates an agreement which leaves them worse off than the discounted expected value of their future rematching in the market finally we compare and contrast the efficient allocations with those that could ever arise as the equilibria of some voluntary negotiation procedure

credit mismatch and breakdown abstract this paper studies the phenomenon of mismatch in a decentralized credit market where borrowers and lenders must engage in costly search to establish credit relationships our dynamic general equilibrium framework integrates incentive based informational frictions with a matching process highlighted by i borrowers endogenous market entry and exit decision entry frictions and ii time and resource costs necessary to locate credit opportunities search frictions a key feature of the incentive compatible loan contract negotiated between borrowers and lenders is the interaction of informational frictions in the form of moral hazard with entry and search frictions we find that the removal of entry barriers can eliminate incentive based equilibrium credit rationing more generally entry and incentive frictions are important in understanding the extent of credit rationing and credit mismatch while search and incentive frictions are important for understanding credit market breakdown

basic analytics of multilateral lending and surveillance abstract i analyse the role of multilateral financial institutions in a world of global capital markets assuming that they have an informational advantage over private lenders in the market for sovereign debt i show that the adverse selection problem in this market may be solved through certification if the multilateral agency does not care too much about borrower country welfare however with lending the private information of the agency will be revealed whatever its weighting of borrower welfare vs private lenders profits multilateral lending on concessional terms also alleviates the moral hazard problem that investment in creditworthy borrowers is reduced as private lenders seek to avoid ex post default by constraining credit

dancing to the donors tune policy choice in aid dependent countries current aid rhetoric emphasizes the selective allocation of otherwise unconditional funds in support of the recipients own plans in contrast to the old donor practice of bundling money and policies i show that when recipients have private information policies reflecting their preferences and knowledge might result in such a regime however generous transfers can also induce them to conform to the outcome oriented expectations of donors at the expense of lower aid impact such behaviour is consistent with an abundance of case study evidence moderate disagreements over what the optimal policy is could actually produce better results certain forms of both donor competition and coordination might also eliminate this distortion while a donor concern for need only removes incentives for aid seeking in the least needy countries in summary optimal aid policies are highly context specific and donors should thus concentrate their efforts to practise more informed selectivity

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

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

proliferation and fragmentation transactions costs and the value of aid abstract the problem of the proliferation of the number of aid donors and aid channels continues to worsen it is widely and plausibly believed that this significantly reduces the value of aid by increasing direct and indirect transactions costs we contribute to the existing literature by a categorising the apparent adverse effects of proliferation b producing a reliable and fair indicator of the relative degree to which the main bilateral donors proliferate or concentrate their aid c giving some explanation of why some donors proliferate more than others d constructing a reliable measure of the extent to which recipients suffer from the problem of fragmentation in the sources of their aid and e demonstrating that the worst proliferators among the aid donors are especially likely to be suppliers of aid to recipients suffering most from fragmentation there are significant implications for aid policy

productivity gains from unemployment insurance this paper argues that unemployment insurance increases labor productivity by encouraging workers to seek higher productivity jobs and by encouraging rms to create those jobs we use a quantitative model to investigate whether this eect is comparable in magnitude to the standard moral hazard eects of unemployment insurance our model economy captures the behavior of the u s labor market for high school graduates quite well with unemployment insurance more generous than the current u s level unemployment would increase by a magnitude similar to the micro estimates but because the composition of jobs also changes total output and welfare would increase as well

market power and information revelation in dynamic trading we study a strategic model of dynamic trading where agents are asymmetrically informed over common value sources of uncertainty there is a continuum of buyers and a finite number n of sellers all buyers are uninformed while at least one seller is privately informed about the true state of the world when n 1 full information revelation never occurs in equilibrium and the only information transmission happens in the first period with n 1 the outcome depends both on the structure of the sellers information and even more importantly on the intensity of competition allowed by the existing trading rules when there is intense competition absence of clienteles information is fully and immediately revealed to the buyers in every equilibrium for n large enough regardless of the number of informed sellers on the other hand for trading arrangements characterized by less intense forms of competition presence of clienteles for any n we always have equilibria where information is never fully revealed moreover in that case when only one seller is informed for many parameter configurations there are no equilibria with full information revelation even for large n jel c72 c78 d82 d83

efficiency and vertical integration the case of mine mouth electric generating plants this paper tests four propositions regarding the efficiency of vertical arrangements 1 vertically integrated and nonintegrated firms allocate inputs with efficiency and 2 achieve equal technical efficiency 3 upstream transaction specific investments provide monopsony power and 4 monopsony behavior does not differ by vertical arrangement a behavioral cost function for mine mouth generating plants is estimated the findings include significant differences in the allocative efficiency of integrated versus nonintegrated plants and increased technical efficiency for vertically integrated plants transaction specific investments in mines provide monopsony power nonintegrated plants exercise this power while integrated plants do not copyright 1991 by blackwell publishing ltd

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

equilibrium in a market with sequential bargaining this paper considers a market where pairs of agents who are interested in carrying out a transaction are brought together by a stochastic process and upon meeting initiate a bargaining process over the terms of the transaction the basic bargaining problem is treated with the strategic approach the paper derives the steady state equilibrium agreements analyzes their dependence on market conditions such as the relative numbers of agents of different types and discusses their relations with the competitive equilibrium outcome and other results in the search equilibrium literature this paper considers a market that operates in the following way pairs of agents who have mutual interest in carrying out a transaction are brought together by a stochastic process when two agents meet they initiate a bargaining process over the terms of the transaction if two agents reach an agreement a transaction takes place and they leave the market of course the bargaining positions and hence the agreement reached in any particular meeting will be affected by the conditions prevailing in the market these will include the chances that each of the negotiating parties have of meeting other partners in the event that the agreement in the current negotiations is delayed also the expected length of time required to achieve an alternative transaction and the expected behavior of alternative partners the study of such a market mechanism is of interest for two reasons firstly it captures some realistic aspects of the trade in certain specific markets e g asset markets such as housing and some labor markets secondly it contributes to an understanding of the micro mechanisms of price formation and their role in shaping market outcomes in both cases the features studied are largely neglected in the traditional market equilibrium analyses the related literature includes the articles by diamond 4 5 diamond and maskin 6 mortensen 8 9 and zusman and bell 13 these articles consider markets of the type described above in which transactions are concluded at pairwise meetings of agents the major difference between our work and these articles is in the approach to the basic bargaining problem in the cited articles it is assumed that a meeting is concluded with an instantaneous agreement which divides the associated surplus in an arbitrary predetermined way when the surplus is assumed to be divided equally the division rule is in fact nash s axiomatic bargaining solution in contrast the present paper treats the basic bargaining problem with the strategic approach see rubinstein 19 which constitutes an attempt to look into the bargaining black box this approach explicitly models the time dimension of the bargaining process describes in detail the bargaining procedure and justifies the agreement as a perfect equilibrium in

turnover externalities with marketplace trading this article considers equilibrium decentralized trade when there is a marketplace where buyers and sellers meet costlessly since buyers have idiosyncratic match payoffs for each seller s good some buyers rather than trade with the current stock of sellers wait for new sellers to enter the marketplace to obtain a good they like a turnover externality exists where all traders are better off with higher entry rates of new traders furthermore this turnover externality supports multiple pareto rankable equilibria this provides new insights into similar results obtained in the random matching literature

dynamic auction markets with fiat money in this paper we consider various types of models where fiat money is used to facilitate trades and investigate whether models with fiat money have the same equilibrium allocations in particular we investigate whether or not such models have a continuum of stationary equilibria we first present a dynamic centralized auction market model with money which has not been investigated in the literature we compare its outcome with that of walrasian models with cash in advance constraints and show that the outcomes are very different the walrasian markets model has determinate stationary equilibria and the auction markets model has a continuum of stationary equilibria moreover we also build models on decentralized auction markets and on decentralized markets with bargaining and obtain results similar to those of the dynamic centralized auction markets model

directed search and firm size standard directed search models predict that larger firms pay lower wages than smaller firms contrary to the data this article proposes one way to obtain this positive size wage differential in a directed search setting i posit that there is an optimal size associated with a firm a firm suffers a penalty by not operating at its optimal size i show that if this penalty is sufficiently large the size wage differential will be obtained my model also gives a new way to look at the data because it highlights the importance of the distinction between intended and realized firm sizes

globalization and the confidence game abstract we show that governments in developing countries have an incentive to play the confidence game wherein the need to win the confidence of the international capital market can actually prevent a country from following otherwise sensible policies and force it to follow policies that it would normally consider perverse this incentive arises because of a combination of a conformity bias and good news bias in governmental decision making in an open economy which results in inefficient outcomes which increases rather than decreases the threat of devaluation while institutions that encourage greater transparency and the public revelation of information may often mitigate this inefficiency on some occasions increased transparency may even exacerbate the inefficiency

an imbalanced development of coal and electricity industries in china china s coal and electricity industries have a strong reliance on each other however because of excessive invasion of government it is difficult for these two industries to form a stable reasonable and transaction cost saving relationships but long run disputes and quarrels this paper discusses the pricing policies and transaction relationship between these two industries from the historical perspective it begins with the discussion of coal coal market has become competitive since 1980 due to the system of dual track approach but coal sold to electricity was still tightly controlled by government guided pricing then the paper examines electricity investment and tariff reform unlike coal entry to electricity generation sector was gradually relaxed but generation and retailing tariffs are still strictly regulated as energy demand and prices soared after 2002 coal and electricity enterprises are all unsatisfied with the rule of price setting of coal sold to electricity industry this paper concludes that the deliberate low coal price policy does protect electricity industry from fuel cost fluctuation but harm coal industry allocative and productive efficiency are difficult to achieve in the long run

cournot equilibrium without apology existence and the cournot inverse demand function in a multi commodity framework with absence of wealth effects we prove the existence of equilibrium for cournot oligopoly and that the concept is completely non ambiguous we also obtain a uniquely defined endogenous inverse demand function depending only on the competitive sector

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

bidding for money we analyze monetary exchange in a model that allows for directed search and multilateral matches we consider environments with divisible goods and indivisible money and compare the results with those in models that use random matching and bilateral bargaining two different pricing mechanisms are used ex ante price posting and ex post bidding auctions also we consider settings both with and without lotteries we find that the model generates very simple and intuitive equilibrium allocations that are similar to those with random matching and bargaining but with different comparative static and welfare properties

on the effects of ranking by unemployment duration abstract we propose a theory based on the firm s hiring behavior that rationalizes the observed significant decline of callback rates for an interview and exit rates from unemployment and the mild decline of reemployment wages over unemployment duration we build a directed search model with symmetric incomplete information on worker types and non sequential search by firms sorting due to firms testing of applicants in the past makes expected productivity fall with duration which induces firms to rank applicants by duration in equilibrium callback and exit rates both fall with unemployment duration in our numerical exercise using u s data we show that our model can replicate quite well the observed falling patterns with the firm s ranking decision accounting for a sizable part

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

directed search and job rotation abstract we consider the impact of job rotation in a directed search model in which firm sizes are endogenously determined and match quality is initially unknown a large firm benefits from the opportunity to rotate workers so as to partially overcome the loss of mismatch as a result in the unique symmetric equilibrium large firms have higher labor productivity and lower separation rates in contrast to the standard directed search model with multi vacancy firms this model can generate a positive correlation between firm size and wage without introducing any ex ante productivity differences or imposing any non concave production function assumptions

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

price setting and competition in a simple duopoly model the paper studies a market in which there are two sellers and one buyer each agent wants to trade at most one unit of an indivisible commodity the sellers are uncertain whether the buyer is receiving offers from one or both of them at any given time this model induces competitive and monopolistic outcomes for particular parameter values but other things being equal as the buyer becomes very patient the equilibrium price converges to the competitive one

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

market driven coal prices and state administered electricity prices in china this paper analyzes how the chinese government adjusts electricity prices for both industrial and residential users in response to changes in coal prices using an asymmetric error correction model our results show that there is a long term relation between the coal price and electricity prices but the relationship is weak especially for residential pricing in the short run we find electricity prices are adjusting faster upwards than downwards price adjustment towards long run equilibrium is faster for residential users upwards than downwards on the other hand we find no evidence of asymmetric equilibrium adjustment in the electricity price for industrial use the weak long term relationship reflects the rigidity in electricity pricing and government s reluctance to subject end users to fluctuations of raw materials cost shifts

in search of the holy grail policy convergence experimentation and economic performance we consider a model of policy choice in which appropriate policies depend on a country s own circumstances but the presence of a successful leader generates an informational externality and results in too little policy experimentation corrupt governments are reined in while honest governments are disciplined inefficiently our model yields distinct predictions about the patterns of policy imitation corruption and economic performance as a function of a country s location vis aa vis successful leaders in particular it predicts a u shaped pattern in economic performance as we move away from the leader in the relevant space of characteristics close neighbors should do very well distant countries moderately well on average with considerable variance and intermediate countries worst of all an empirical test with the experience of post socialist countries provides supportive results

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

can a decline in search cost increase prices this paper provides a new explanation of why a decline in consumers price search cost may not lead to lower prices in a duopoly with price competition i show that when some consumers are captive to one firm there may be a non monotonic relationship between search cost and market power firms may charge high prices with higher probability and the average price charged may be higher when consumers price search cost falls below a critical level furthermore when firms have asymmetric captive segments expected prices charged by each firm may move in opposite directions as search cost declines resume est ce qu un declin dans le cout de la recherche accroit les prix ce texte propose une nouvelle explication des raisons pour lesquelles un declin dans le cout de la recherche des consommateurs pour le meilleur prix peut ne pas entrainer un declin du niveau des prix dans un duopole avec competition par les prix on montre que quand certains consommateurs sont prisonniers d une firme il peut y avoir une relation non monotone entre cout de la recherche et pouvoir dans ce marche les firmes peuvent imposer des prix plus eleves avec une plus grande probabilite et le prix moyen charge peut etre plus eleve quand le cout de recherche du meilleur prix des consommateurs tombe au dessous d un seuil critique de plus quand les firmes ont des segments captifs asymetriques le prix charge anticipe pour chaque firme peut se deplacer dans des directions opposees a proportion que les couts de recherche declinent

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

economic development as self discovery in the presence of uncertainty about what a country can be good at producing there can be great social value to discovering costs of domestic activities because such discoveries can be easily imitated we develop a general equilibrium framework for a small open economy to clarify the analytical and normative issues we highlight two failures of the laissez faire outcome there is too little investment and entrepreneurship ex ante and too much production diversification ex post optimal policy consists of counteracting these distortions to encourage investments in the modern sector ex ante but to rationalize production ex post we provide some informal evidence on the building blocks of our model

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

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

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

wage vacancy contracts and multiplicity of equilibria in a directed search model of the labour market this paper studies a directed search model of the labour market which is standard in all aspects except two first we allow firms to post wage vacancy contracts advertising the number of workers they would pay as well as the payment all will receive second we consider two cases one where workers are risk neutral and one where workers are risk averse both in finite and large economies our paper shows that when firms post wage vacancy contracts whether workers are modelled as risk neutral or risk averse matters the types of symmetric equilibria and the nature of multiplicity of equilibria are different somewhat surprisingly when there are finite numbers of risk neutral workers and firms we obtain a finite number of symmetric equilibria but when workers are risk averse we obtain a continuum of equilibria furthermore our paper sounds a cautionary note on using large economies as an approximation of finite economies when workers are risk neutral the nature of equilibrium is preserved going from a finite to a large economy but the nature of equilibrium is different when workers are risk averse les contrats salaire emploi et la multiplicite des equilibres au sein d un modele de recherche dirigee applique au marche du travail cet article etudie un modele de recherche dirigee applique au marche du travail qui differe du modele standard en deux points premierement les entreprises peuvent proposer des contrats dits salaire emploi qui en plus du salaire indiquent le nombre de travailleurs qu un employeur est dispose a recruter deuxiemement nous considerons deux cas un ou les travailleurs ne presentent pas d aversion au risque et l autre ou ils sont averses au risque a chaque fois pour des economies avec une nombre fini puis infini d agents l article demontre que la presence ou non d aversion au risque a de l importance quand les entreprises peuvent proposer des contrats salaire emploi car les types d equilibres symetriques et la nature des multiplicites different dans les deux cas par exemple si l on considere une economie avec un nombre fini de travailleurs il existe un nombre fini d equilibres symetriques lorsque les travailleurs ne presentent pas d aversion au risque alors qu il en existe un continuum lorsque les travailleurs sont averses au risque qui plus est l article invite a la prudence en utilisant une economie a nombre infini d agents comme approximation d une economie peuplee d un nombre fini d agents car en allant de l une a l autre la nature des equilibres est preservee dans le cas de travailleurs ne presentant pas d aversion au risque alors qu elle change lorsque les travailleurs sont averses au risque

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

real effects of money growth and optimal rate of inflation in a cash in advance economy with labor market frictions this paper studies the consequences of labor market frictions for the real effects of steady inflation when cash is required for households consumption purchases and firms wage payments money growth may generate a positive real effect by encouraging vacancy creation and raising job matches this may result in a positive optimal rate of inflation particularly in an economy with moderate money injections to firms and with nonnegligible labor market frictions in which wage bargains are not efficient this main finding holds for a wide range of money injection schemes with alternative cash constraints and in a second best world with pre existing distortionary taxes

investigating co2 mitigation potentials and the impact of oil price distortion in china s transport sector abstract the transport sector is a major source of oil consumption and co2 emissions in china however due to the regulated pricing mechanism in china the end user oil price cannot reflect real market price and thus oil price distortion exists therefore the main aim of this paper is to study the affecting mechanism of oil price distortion on co2 emission mitigation firstly the level of oil price distortion is evaluated and a dynamic trans log cost function model is built to analyze the substitution relationship among energy products secondly the own price elasticity and cross price elasticity for fuel demand are calculated based on provincial panel data of china s transport sector over 2004 2016 finally co2 mitigation potentials are estimated by removing the impact of oil price distortion results show that 1 there is positive oil price distortion over 2004 2016 2 substitute relationship is observed between oil and coal oil and electricity and the substitution relationship is affected by factor substitution 3 removing oil price distortion will reduce co2 emissions of china s transport sector by 599 million tons in the studying period policies should focus removing the impact of oil price distortion promoting electricity oil substitution and promoting capital energy substitution to mitigate co2 emissions

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

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

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

decomposition of carbon intensity in electricity production technological innovation and structural adjustment in china s power sector abstract china s power generation accounted for 24 of the world s total output ranking first in 2015 as a suitable performance indicator carbon intensity of electricity reflects a variation in the average level of carbon emissions per unit of electricity generated as the largest carbon emitter among various industries power sector is in duty bound to reduce carbon emissions and achieve sustainable development great progress has been made in china s power sector which is reflected by the effects of technological innovation and structural adjustment with logarithm transformation and integral transformation three dimensional decomposition model is proposed to quantitatively measure the changed carbon intensity of electricity due to technological innovation and structural adjustment in the context of three dimensional model the variation of carbon intensity can be decomposed into absolute changes and or relative changes furthermore accumulative decomposition results are obtained by chain linked calculation rules finally the proposed models are implemented in china s power industry to reveal its historical progress during 1980 2014 some important conclusions are also found based on the decomposition results

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

product market and the size wage differential using directed search to model the product market and the labor market i show that large plants can pay higher wages to homogeneous workers and earn higher expected profit per worker than small plants although plants are identical except size a large plant charges a higher price for its product and compensates buyers with a higher service probability to capture this sizerelated benefit large plants try to become larger by recruiting at high wages this size wage differential survives labor market competition because a high wage is harder to get than a low wage moreover the size wage differential increases with the product demand when demand is initially low and falls when demand is already high

can energy price regulations smooth price fluctuations evidence from china s coal sector abstract due to the dominance of coal in china s energy mix coal prices have always been a challenging part of pricing reform the recent frequent government interventions raise the key research questions what is the actual impact of price policies on coal price fluctuations and how can forward looking pricing policies be made by proposing a novel classification of coal pricing policies and introducing an expectation and forward looking coefficient the paper examines the relationship between coal price fluctuations and pricing policies using the generalized method of moments gmm method it shows that the lagging coal price and coal demand play a positive role in regulating coal prices while coal supply and marketization have significantly negative effects on coal price fluctuations the heterogeneous impacts of price policies are due to differences in market players expectations policy instruments and the methods of policy release in addition china s coal pricing policy portfolio from 2013 to 2016 exerted synergy effects on the restraint of coal price fluctuations as the forward looking coefficient was considerably low the government s intervention behaviors were obviously biased towards ex post facto responses the paper suggests short run and long run policies to advance marketization of coal prices amid the energy transition

analysis of thermal coal pricing and the coal price distortion in china from the perspective of market forces abstract the price of thermal coal has always been the focus of the debate between coal mining industry and electric power industry the thermal coal price is always lower than other same quality coal and this phenomenon of thermal coal price distortion has been existing in china for a long time the distortion coal price can not reflect the external cost and the resource scarcity of coal which could result in environment deteriorating and inefficient resource allocation this paper studied the phenomenon of thermal coal price distortion through economic theoretical modeling and empirical cointegration analysis from the perspective of market forces the results show that thermal coal price is determined by electricity price the prediction elasticity of a electricity enterprise price elasticity of demand of electricity the input prediction elasticity of a electricity enterprise and the price elasticity of supply of thermal coal the main reason of coal price distortion is the unbalance market force of coal industry and thermal coal generation industry the distortion rate of coal price is positively related to the market force of electric power industry and negatively related to the industrial concentration of coal industry

dual measures of monopoly and monopsony power an application to regulated electric utilities the inefficiency from monopoly pricing monopsony pricing and other institutional factors should be simultaneously estimated to avoid misspecification estimation of a behavioral profit function where input and output shadow prices may diverge from their market values allows unbiased simultaneous estimation of inefficiencies if its normalized form is employed in an application to electric utilities consuming western coal the authors cannot reject the hypothesis that utilities act as price takers in output markets and find weak and statistically insignificant evidence of fuel adjustment clause bias strong evidence is found of monopsony behavior in the market for western coal and its transportation copyright 1989 by mit press

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

the dynamic linkage effect between energy and emissions allowances price for regional emissions trading scheme pilots in china abstract china s emissions trading scheme cets pilots are emerging and fragmented markets these emissions allowances markets may exhibit a different fundamental price process from the european union s eu and the united states us emissions trading scheme ets the dynamic linkage effects between energy and emissions allowances prices are investigated for regional ets pilots in china using cointegration techniques the empirical results confirm that in the long run coal oil and natural gas prices are the main determinant factors of regional emissions allowances prices except for the second phase beijing ets pilots however their long run cointegration relationships in the beijing and shanghai pilots are not exactly in line with the guangdong and hubei pilots in the short run the changes in oil and natural gas prices in the second phase beijing ets pilot the natural gas prices in the shanghai ets pilot and the coal prices in the hubei ets pilot are found to have significant effects on regional emissions allowances prices in china finally regional energy pricing inefficiency regional emissions trading market overreaction and their inefficient fundaments may provide major obstacles in reducing the effectiveness of the fossil energy price pass through to emissions allowances prices in regional ets pilots

aid investment and incentives promoting productive investment and economic growth are among the key objectives of most aid organizations operating in poor countries however it is not possible to conclude from existing empirical evidence that aid contributes positively to growth in this paper it is shown that those rather negative results may be explained by important incentive problems built into the aid system itself the recipient countries own efforts to contribute to investment and growth may in reality be undermined and the result may be aid dependency

a directed search model of intermediated trade abstract this paper complements antras and costinot s 2010 analysis of a two good two country ricardian economy in which farmers produce either goods but require intermediaries to exchange their production in the goods markets the intermediation market is frictional whereas the goods market is perfectly competitive unlike their random search and price bargaining setup intermediaries herein post intermediation prices and farmers direct their search contrary to their findings we show that opening the economy to international trade always leads to welfare gains this is the case because domestic farmers benefit from relatively efficient intermediation technologies in terms of higher matching probabilities but also lower intermediation prices

fixed or flexible wage setting in search equilibrium why do some vacancies offer a posted wage whereas others offer a negotiable wage the paper endogenizes the choice of wage policy in a standard sequential search model with heterogeneous workers in particular we identify circumstances such that there exists an equilibrium in which all firms negotiate wages we find that this equilibrium exists if and only if the labour market is sufficiently tight and worker heterogeneity is sufficiently large

what explains the success or failure of structural adjustment programs in the 1980s development assistance shifted largely from financing investments such as roads and dams to promoting policy reform this change came because of a growing awareness that developing countries were held back more by poor policies than by a lack of finance for investment after nearly 20 years experience with policy based or conditional lending there have now been many studies of adjustment lending most of which take a case study approach many conclude that policy based lending works if countries have decided on their own to reform the authors examine a database of 220 world bank supported reform programs to identify why adjustment programs succeed or fail they find that a few political economy variables can successfully predict the outcome of an adjustment loan 75 percent of the time variables under the world bank s control resources devoted to preparation and supervision or number of conditions have no relationship with an adjustment program s success or failure what development agencies must do then is select promising candidates for adjustment support when the candidates is a poor selection devoting more administrative resources or imposing more conditions will not increase the likelihood of successful reform to improve its success rate with adjustment lending the world bank must become more selective and do a better job of understanding which environments are promising for reform and which are not that is likely to lead to fewer adjustment loans unless there is a significant change in the number of promising reformers to become more effective at supporting policy reform the agency must be willing to accept that this may lead to smaller volumes of lending

the economics of new blood abstract we construct a dynamic general equilibrium model of search and matching where public knowledge grows through time and workers accumulate a fraction of this knowledge through education retraining due to search delays the unemployment pool is populated by vintages of workers of differing productivities through intergenerational rivalry the human capital of older generations is rendered obsolete relative to that of the new blood higher knowledge growth exacerbates intergenerational competition thereby lowering education and growth while raising unemployment and inequality these findings help explain wage compression expansion and the hump shaped wage tenure profile across cohorts

a theory of money and marketplaces this article considers an infinitely repeated economy with divisible fiat money the economy has many marketplaces that agents choose to visit in each marketplace agents are randomly matched to trade goods there exist a variety of stationary equilibria in some equilibrium each good is traded at a single price whereas in another every good is traded at two different prices there is a continuum of such equilibria which differ from each other in price and welfare levels however it is shown that only the efficient single price equilibrium is evolutionarily stable

a competitive distribution of auctions in this paper a competitive distribution of auctions is described for an economy consisting of an infinite number of buyers and sellers all of whom differ according to their valuation for the single indivisible object being traded a competitive distribution of auctions is such that no seller can improve his profits by deviating to any alternative direct mechanism it is shown that the competitive distribution of auctions will have the property that each buyer and seller s best reply is independent of his beliefs about the tastes of other buyers and sellers on the market the purpose of this paper is to provide an equilibrium for an economy in which sellers compete by offering different direct mechanisms to buyers no attempt is made to give a complete characterization of all possible equilibria rather we focus on one equilibrium in which the contracts that are offered by sellers in equilibrium and buyer s behaviour under these contracts are both independent of traders beliefs about one another the equilibrium illustrates one of the reasons why contracts that are employed in practice may not be as finely tuned to beliefs as the theory of mechanism design says that they should be the answer is simply that contracts are not offered in a vacuum sellers in the model studied in this paper need to compete with one another in order to attract buyers highly tuned mechanisms tend to extract buyer surplus in such an environment sellers are able to attract many buyers by offering to use cruder mechanisms that leave some surplus for buyers in this paper sellers are allowed to have different costs for the commodity that is being traded nonetheless the equilibrium for the limit economy in which there are infinitely many buyers and sellers is such that every seller offers a second price auction and publicizes a reserve price equal to his cost in a standard monopoly auction the optimal reserve price for the seller exceeds his cost by an amount that depends on his beliefs about buyers valuations myerson 1981 a seller who raises his reserve price has his profits affected in two distinct ways by raising his reserve price the seller makes it unprofitable for some buyer types to participate in his auction the seller therefore loses any surplus that he might have earned by trading with these buyers the buyers who still find it profitable to participate in the seller s auction will end up having to pay a higher price when they win because of this increase in the seller s reserve price this means that the seller will be able to extract a bit more surplus from buyers who continue to participate the seller raises the reserve price until the marginal cost associated with raising the reserve price is just equal to the marginal gain associated with the ability to extract more surplus from remaining buyers competition mitigates this argument since there is a limit to the amount of surplus that the seller can extract from remaining buyers before they decide that they should instead choose one of the alternative auctions that are being held on the market with

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

china s electricity market oriented reform from an absolute to a relative monopoly abstract the market oriented reform in electricity industry has become a global trend since 1980s although china s electricity industry has been reformed since 1978 the substantial reform has not been conducted until 1985 before 1985 china s power industry had been absolutely monopolized by the central state owned companies the absolute monopoly has been broken since 1985 when the chinese government opened doors for non central state owned investment entities and foreign investors in power supplies in order to solve the chronic power shortage in 2002 the comprehensive electricity reform plan entitled scheme of the reform for power industry was enacted however implementation of this plan was delayed due to electricity supply shortages even worse a new kind of monopoly has been developed under the background the state advances the private sector retreats in late years in some sense the former absolute monopoly has transformed the current relative monopoly we contend that the relative monopoly has reversed the market oriented reform in china s electric industry if the relative monopoly remains unchanged it will be harmful to public welfare

bargaining search costs and equilibrium price distributions this paper studies a bargaining model of equilibrium price distributions consumers choose a seller at random and face search costs to switching to another store in the market equilibrium the prices at all stores are determined simultaneously as the perfect equilibrium of a bargaining game in this game the buyer has the outside option to search for another seller differences between the sellers types create price dispersions typically the number of active sellers increases with higher search costs the market equilibrium converges to the competitive equilibrium under perfect information when search costs become small

welfare impacts of electricity generation sector reform in the philippines abstract this paper reports an empirical investigation into the welfare impacts of the introduction of private sector participation into the philippines electricity generation sector by liberalizing the market for independent power producers ipps during the power crisis of 1990 1993 this study uses a social cost and benefit analysis the main benefits came from ipps who contributed to resolving the crisis and promoted economic and social development consumers and investors were net gainers while the government lost and there was an air pollution cost the paper concludes that the reform with private sector participation increased 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