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

uncertainty and the timing of an urban congestion relief investment the no land case we analyze the impact of population uncertainty on the socially optimum timing of a congestion relief project in a linear monocentric city with fixed boundaries where congestion pricing cannot be implemented this project requires time to bear fruit but no urban land under certainty we show that utility maximization is roughly equivalent to a standard benefit cost analysis bca under uncertainty we derive an explicit optimal threshold for relieving congestion when the urban population follows a geometric brownian motion if the time to implement the project is short we show analytically that deciding on the timing of congestion relief based on a bca could lead to acting prematurely the reverse holds if project implementation is long and uncertainty is large enough

climate damages in the fund model a disaggregated analysis abstract we examine the treatment of climate damages in the fund model by inserting software switches to turn individual features on and off we obtain fund s estimates for 15 categories of damages and for components of the agricultural category fund as used by the u s government to estimate the social cost of carbon projects a net benefit of climate change in agriculture offset by a slightly larger estimate of all other damages within agriculture there is a large benefit from co 2 fertilization a moderate cost from the effect of temperature on yields and a much smaller impact of the rate of change in fund s agricultural modeling the temperature yield equation comes close to dividing by zero for high probability values of a monte carlo parameter the range of variation of the optimal temperature exceeds physically plausible limits with 95 confidence intervals extending to 17 c above and below current temperatures moreover fund s agricultural estimates are calibrated to research published in 1996 or earlier use of estimates from such models is arguably inappropriate for setting public policy but as long as such models are being used in the policymaking process an update to reflect newer research and correct modeling errors is needed before fund s damage estimates can be relied on

financial market innovation and security design an introduction abstract the article describes in the context of theory and practice this special issue of the journal of economic theory on financial market innovation and security design the main focus is on security design in incomplete financial markets possibly with asymmetrically informed traders we first survey the general equilibrium literature which emphasizes the spanning role of securities we then provide a unified framework encompassing the literature that employs a cara guassian setting to study the impact of financial innovation on risk sharing and information aggregation journal of economic literature classification numbers g10 d52

help wanted job needed estimates of a matching function from employment service data i estimate a function that matches vacant jobs and unemployed workers to produce new hires israeli law requiring vacancy registration yields unique data quality the literature underestimates matching function coefficients because of a simultaneity bias as the outflow of hires depletes stocks of unemployed and vacancies instruments and a new simulation method address this bias a new test reveals strong evidence of heterogeneity in unemployed and vacancies estimates imply labor market dynamics that absorb shocks completely within only 2 months reductions in the hire rate of referrals can explain a 2 1 percentage point increase in unemployment between 1978 and 1990

sorting and the output loss due to search frictions we analyze a general search model with on the job search ojs and sorting of heterogeneous workers into heterogeneous jobs for given values of nonmarket time the relative efficiency of ojs and the amount of search frictions we derive a simple relationship between the unemployment rate mismatch and wage dispersion we estimate the latter two from standard micro data our methodology accounts for measurement error which is crucial to distinguish true from spurious mismatch and wage dispersion we find that without frictions output would be about 9 5 higher if firms can commit to pay wages as a function of match quality and 15 5 higher if they cannot noncommitment leads to a business stealing externality which causes a 5 5 drop in output

mismatch of talent evidence on match quality entry wages and job mobility we examine the impact of mismatch on entry wages separations and wage growth using unique data on worker talents we show that workers are sorted on comparative advantage across jobs within occup

optimal innovation of futures contracts this article presents a simple model of the innovation of new futures contracts by transaction volume maximizing futures exchanges in incomplete markets under uncertainty with mean variance preferences and proportional transactions costs we characterize the set of nash equilibria for a number of exchanges simultaneously or sequentially choosing contracts the optimal monopolistic contract design is shown to be pareto optimal an example shows the failure of pareto optimality for aparticularnash equilibrium likewise in a monopolistic multiperiod setting an example shows the failure of pareto optimality given an incentive for the exchange to induce turnover

optimal hedging and equilibrium in a dynamic futures market abstract this paper considers an agent maximizing the expected utility of the sum of the terminal value of a fixed portfolio of spot market assets and the terminal value of a margin account on a futures trading position closed form solutions for the optimal hedging strategy are provided in several special cases

the right man for the job this paper describes a search model with a continuum of worker and job types free entry and transferable utility we apply a second order taylor expansion to characterize the equilibrium derive the cost of search and show that it is decreasing in the substitutability of worker types this cost of search is then decomposed into three components unemployment vacancy costs and mismatch our contact technology rules out congestion effects between different worker types and therefore exhibits increasing returns to scale one third of those increasing returns in contacts are shown to be absorbed by firms and workers being more choosy the resulting equilibrium is not efficient unemployment benefits can reduce the loss by serving as a search subsidy numerical simulations of the model show that our taylor expansions are quite accurate 2004 the review of economics studies limited

the contribution of minimum wages to increasing wage inequality recent research has shown the reduction in the minimum wage to be the main cause of the rise in wage dispersion in the lower half of the wage distribution in the us during the 1980s however the return to human capital does not seem to have been much affected using new methodology this paper confirms previous conclusions regarding the wage distribution but shows that the return to human capital has also increased strongly a 10 reduction of the minimum wage causes the wage of someone earning the previous minimum to fall by 8 evidence in favour of a distance dependent elasticity of substitution dides production function there has been a massive increase in wage inequality in the us the 10 50 and 50 90 log wage differential grew by 0 10 and 0 06 respectively during the 1980s economists have tried to put their finger on the causes of this phenomenon wood 1995 believes globalisation to be the main cause however most empirical research suggests that international trade is only a small part of the explanation see freeman 1995 for a survey others hold skill biased technological progress responsible for example bound and johnson 1992 technology is always a kind of residual item for which appropriate variables are hardly available its impact is therefore difficult to pin down empirically autor et al 1998 have shown that the use of computers by industry is strongly correlated to the increase in the employment of college graduates dinardo et al 1996 called attention to the role of institutions in particular declining unionism and the fall in minimum wages during the 1980s they hold minimum wages responsible for 25 of the increase in wage dispersion pictures of the estimated density functions for the period 1973 90 show that minimum wages have had a large impact dinardo et al calculate the effect of minimum wages by assuming a change in the minimum wage to have no effect on the shape of the wage distribution to the right of the minimum at first glance the wage distributions plotted in their paper suggest that this assumption is not supported by the data implying that their estimate of 25 is a lower bound indeed applying a different methodology lee 1999 reached the conclusion that the decrease in minimum wages can explain virtually the whole increase in wage inequality he simply regresses 10 50 and 50 90 log wage differentials by year and state on the relevant minimum wage using state variation in minimum wages lee s results open the question as to what mechanism makes that minimum wages have so large an impact there are two potential channels either minimum

optimality of incomplete markets abstract in a static exchange economy where the traders initial endowments are risky the optimality of the financial structure is studied when markets are incomplete only financial structures with the same number of assets are compared a market structure is optimal when in a particular economy it yields an allocation of risks which cannot be pareto dominated through the implementation of any other market structure in a linear gaussian setup the optimal market structures are shown to span an eigenspace of a matrix which combines the risk exposures of the participants in the market approximately weighted by a measure of their risk aversions journal of economic literature classification numbers d60 g10

commission revenue maximization in a general equilibrium model of asset creation abstract a general equilibrium model of endogenous asset formation is given in which a monopolistic agent called the designer can create any types of assets and charage commissions as long as the total number of the types of assets does not exceed some given constant when the designer can create at most two assets a commission revenue maximizers always exists otherwise it may not moreover the so called maximizers may be badly behaved a profit maximiser may not exist even when the number of types of assets is endogenously determined from a positive fixed costs of creating an asset journal of economic literature classification numbers d52 d80

an empirical equilibrium model of a decentralized asset market i estimate a search and bargaining model of a decentralized market to quantify the effects of trading frictions on asset allocations and asset prices and to quantify the effects of intermediaries that facilitate trade using business aircraft data i find that relative to the walrasian benchmark 12 4 percent of the assets are misallocated and prices are approximately 27 3 percent lower dealers play an important role in reducing frictions in a market with no dealers 15 7 percent of the assets would be misallocated perhaps surprisingly in a market with no dealers prices would increase by 2 8 percent because sellers outside options improve relative to buyers thus counteracting the effects of higher search costs and slower trade on asset prices

unemployment vs mismatch of talents reconsidering unemployment benefits we develop an equilibrium search matching model with risk neutral agents and two sided ex ante heterogeneity unemployment insurance has the standard effect of reducing employment but also helps workers to get a suitable job we show through calibrations how the mere difference on unemployment insurance when countries experience a common skilled biased technological shock may result in differences in unemployment productivity growth and wage inequality these results are consistent with the contrasting performance of the labour market in europe and the united states in the last twenty five years the model is used to address some political economy issues

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

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

anonymity and optimality of competitive equilibria when markets are incomplete abstract we study the optimality or efficiency of competitive equilibria in a standard two period economy where markets are incomplete statistical information about consumers preferences and endowments is known to a social planner but the planner cannot observe consumers types directly a competitive equilibrium is anonymous constrained optimal if the social planner cannot pareto improve upon the equilibrium allocation by intervening in asset markets with any asset trade rule satisfying anonymity in some cases a competitive equilibrium is robustly anonymous constrained optimal whereas it is known that competitive equilibria are generically constrained suboptimal for the case of completely observable types journal of economic literature classification numbers d52 d82 h21

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

on the segmentation of markets this paper endogenizes the market structure of an economy with heterogeneous agents who want to form bilateral matches in the presence of search frictions and when utility is nontransferable there exist infinitely many marketplaces and each agent chooses which marketplace to be in agents get to choose not only whom to match with but also whom they meet with perfect segmentation is obtained in equilibrium where agents match with the first person they meet all equilibria have the same matching pattern although perfect assortative matching is not obtained in equilibrium the degree of assortativeness is greater than in standard models

estimating compensating wage differentials using voluntary job changes evidence from germany the author develops a model predicting that in a labor market that attaches a wage premium to jobs with a disamenity a compensating wage differential the premium s upper bound will be defined by the average wage change of voluntary job movers whose consumption of the disamenity rises as a result of their move its lower bound by the wage change of those whose consumption of the disamenity falls these predictions will not hold if as predicted by a segmented labor market model the labor market attaches a wage penalty to workplace disamenities using longitudinal data on job characteristics and wages in germany in 1984 2001 the author estimates the market returns to four workplace disamenities heavy workload job insecurity poor hours regulation and a mismatch between skills possessed and skills required the results broadly support the existence of compensating differentials in the german labor market

endogenous determination of the degree of market incompleteness in futures innovation abstract this paper studies the determination of the number of futures contracts created by an exchange we show that though the exchange can create the futures contracts costlessly if the investors have differential information there may be an upper bound on the number of contracts that the exchange is willing to create in a stylized economy we investigate what type of contracts and how many of these the exchange is willing to create journal of economic literature classification numbers d52 d82 g14

on the inefficiency of matching models of unemployment with heterogeneous workers and jobs when firms rank their applicants in a circular matching model with bargained wages firms rank their applicants and pick the most suitable one job creation appears to lower the average output as firms do not internalize this effect there are too many jobs in a laissez faire equilibrium under the hosios condition by contrast job rejection is efficient for the equilibrium value of market tightness consequently introducing unemployment compensation raises the aggregate income by lowering market tightness due to the isomorphism between the two models these results extend to match specific productivities however competitive search restores market efficiency

on the job search mismatch and efficiency this paper characterizes the equilibrium for a large class of search models with two sided heterogeneity and on the job search besides the well known congestion externalities we show that on the job search in combination with monopsonistic wage setting without commitment creates a business stealing externality in the absence of congestion effects this leads to excessive vacancy creation under wage setting with commitment this externality is absent because when posting a wage firms take into account the expected productivity of future workers in their current jobs if firms are able to make and respond to counteroffers then they will not have to pay no quit premia and this also leads to excessive vacancy creation

the impact of young workers on the aggregate labor market an increase in the share of youth in the working age population of one state or region relative to the rest of the united states causes a sharp reduction in that state s relative unemployment rate and a modest increase in its labor force participation rate this is inconsistent with many theories of the labor market but can be easily explained by a model of frictional unemployment with on the job search the theory makes strong predictions regarding the behavior of wages which are shown to be consistent with the data the paper also reconciles its findings with an existing body of apparently contradictory empirical evidence

dynamic asset pricing with non redundant forwards abstract in an incomplete market in which non redundant forward contracts contribute to span the uncertainty some standard results of portfolio theory must be amended when the investment opportunity set is driven by k state variables a k 3 mutual fund separation theorem is obtained in lieu of merton s k 2 fund separation result the additional fund is a portfolio that hedges the interest rate risk brought about by the optimal portfolio strategy itself second the mean variance efficiency of the market portfolio of cash assets is neither a necessary nor a sufficient condition for the linear relationship between expected return and beta to hold third the pricing equation for a forward contract is shown to contain an extra term relative to that for a cash asset term we name strategy risk premium

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

excess worker reallocation workers face a trade off between macroeconomic and individual incentives to work in different occupations industries namely between search frictions and personal comparative advantages workers endowed with heterogeneous multi dimensional skills search for jobs that require different skill combinations in equilibrium specialized individuals contact few selected types of vacancies where they are likely to be hired those with weak comparative advantages are seldom chosen among competing applicants thus seek any job type in a tight labour market comparative advantages dominate waiting costs offsetting labour mobility across industries occupations excess worker reallocation is lower and matches are more successful consistently with direct and indirect evidence

explaining u shape of the referral hiring pattern in a search model with heterogeneous workers this paper presents a search model with heterogeneous workers social networks and endogenous search intensity there are three job search channels costly formal applications and two costless informal channels through family and professional networks our model explains a u shape referral hiring pattern observed in empirical studies and a strong selection of workers on productivity across the three channels moreover combining family and professional referrals into one informal channel may generate a spurious result of wage premiums penalties if high low productivity workers are dominating in the empirical data and their productivity is not fully observable to the econometrician

optimal futures innovation in a dynamic economy the discrete time case abstract we study the optimal futures innovation in a dynamic economy and investigate how the results obtained in a static economy should be modified due to the possibility of dynamic trading we analyze three different notions of ex ante optimality depending on the authority s ability to redistribute wealth among the investors and characterize the optimal futures innovation in each sense journal of economic literature classification numbers d52 d60 g10

education matching and the allocative value of romance societies are characterized by customs governing the allocation of non market goods such as marital partnerships we explore how such customs affect the educational investment decisions of young singles and the subsequent joint labour supply decisions of partnered couples we consider two separate matching paradigms for agents with heterogeneous abilities one where partners marry for money and the other where partners marry for romantic reasons orthogonal to productivity or debt these generate different investment incentives and therefore have a real impact on the market economy while marrying for money generates greater investment efficiency romantic matching generates greater allocative efficiency since more high ability individuals participate in the labour market the analysis offers the possibility of explaining cross country differences in educational investments and labour force participation based on matching regimes

marriage and the city search frictions and sorting of singles this paper develops and tests a model where cities play an important role as marriage markets the idea is simple cities are dense areas where singles can meet more potential partners than in rural areas to enjoy those benefits they are willing to pay a premium in terms of higher housing prices once married the benefits from meeting more potential partners vanish and married couples move out of the city attractive singles benefit most from a dense market and are therefore more likely to move to the city those predictions are tested and confirmed with a unique danish data set

the wage distribution in a model of the assignment of skills to jobs this paper discusses a general equilibrium model of the assignment of heterogeneous workers to heterogeneous jobs both jobs and workers are measured along a continuous one dimensional scale the c

optimal incomplete markets with asymmetric information abstract this paper provides a simple parametric framework for comparing alternative incomplete asset structures in a productive economy focusing on the role of assets in allocating risk and transmitting private information it characterizes asset structures that are constrained efficient in the sense that no other asset structure with the same number of securities leads to a pareto dominating allocation in equilibrium specifically a constrained efficient asset structure must be efficient with respect to both risk sharing and information transmission explicit optimality criteria are developed and used to evaluate innovation by volume maximising futures exchanges journal of economic literature classification numbers g14 d52 d82

global carbon reduction and economic growth under autonomous economies abstract the ecological and environmental issues caused by climate change have affected human health and social development accordingly scientists have focused on addressing climate change iams integrated assessment models have been widely used to assess the effect of global climate governance since the us withdrew from the paris agreement and the uk broke away from the european union global economic development takes on an uncertain path the worldwide trade war triggered by the us has shown that international trade may be weakened in the future the deglobalization in global economic progress forces individual innovation within countries therefore we constructed a new iam under autonomous economies emrices e expanded multi regional integrated model of climate and economy system equilibrium which contains a layered structure of national computable general equilibrium cge model to describe an individual country s development and analyzes the effects of global reductions in cooperation based on the new global situation considering that technical progress is a significant factor in carbon reduction we introduced endogenous technical progress in cge simulation results show that developing countries regions have large carbon emissions under the baseline scenario with their economic status increasing at the same time climate change would lead to economic recession if there are no carbon reductions for countries regions and the industrial structure of developing countries changes noticeably compared with developed countries

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

comparative advantage relative wages and the accumulation of human capital i apply ricardo s principle of comparative advantage to a theory of factor substitutability in a model with a continuum of worker and job types highly skilled workers have a comparative advantage in complex jobs the model satisfies the distance dependent elasticity of substitution dides characteristic substitutability between types declines with their skill distance i analyze changes in relative wages due to human capital accumulation the concept of a complexity dispersion parameter or compression elasticity is introduced empirical studies suggest its value to be equal to two a 1 percent increase in the stock of human capital reduces the mincerian return by 2 percent

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

mobility costs frictional unemployment and efficiency with imperfect job information flows it is plausible that the distribution of job offerings becomes more attractive when there are more vacancies and more unemployed with word of mouth communication this condition is derived given this condition steady state equilibrium is not efficient with welfare increased by the introduction of unemployment compensation even though all agents are risk neutral in this way workers become more selective in the jobs they accept

a regional dynamic general equilibrium model of alternative climate change strategies outcomes and noncooperative equilibria this study finds that cooperative policies show much higher levels of emissions reductions than do noncooperative strategies that there are substantial differences in the levels of controls in both the cooperative and the noncooperative policies among different countries and that high income countries may be the major losers from cooperation jel h41 q4 q2 q20

the role of liquidity in futures market innovations i characterize the optimal design of a new futures market an innovation by an exchange in the presence of market frictions futures markets am characterized by both the contract and the level of trader participation both can be determined by an exchange a game in which exchanges simultaneously design markets is c onsidered and a particular equilibrium not necessarily unique is constructed a game in which exchanges sequentially design markets and incur design costs is also considered and the generically unique equilibrium is constructed the nature of equilibrium with multiple exchanges is discussed in these simultaneous and sequential settings illustrating the role played by liquidity considerations both in market design and in the nature of competition between exchanges

the determinants of equilibrium unemployment the paper takes the search and matching model of the aggregate labor market to the data it tests the model s empirical validity and employs structural estimation to generate a characterization of the optimal behavior of firms and workers the model is applied to israeli data that are uniquely suited for this kind of empirical investigation the structural estimates are used to quantify the frictions embodied in the model including the costs of search the congestion and trading externality effects and the matching process a calibration simulation analysis then studies the effect of several key variables on equilibrium unemployment

how large are search frictions textabstractthis paper presents strong evidence for the concavity of wages in job and worker characteristics by adding second order terms to a mincerian earnings function for 6 oecd countries under a standard normality assumption this concavity cannot be attributed to unobserved components in those characteristics an assignment model with search frictions provides a parsimonious explanation for our findings this model yields two restrictions on the coefficients which fit the data very well the impact of search frictions on wages is large our results relate to the literature on industry wage differentials on structural identification in hedonic models and on wage posting versus nash bargaining in search models

endogenous technological change in climate change modelling this article investigates the impact on optimal co2 abatement and carbon tax levels of introducing endogenous technological change in a macroeconomic model of climate change we analyse technological change as a function of cumulative capacity as incorporated recently in energy systems models our calculations confirm that including endogenous innovation implies earlier emission reduction to meet atmospheric carbon concentration constraints however the effect is stronger than suggested in the literature moreover the development of non fossil energy technologies constitutes the most important opportunity for emission reductions optimal carbon tax levels reducing fossil energy use are lower than usually advocated