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Pareto Inefficiency of Market Economies: Search and Efficiency Wage Models

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  • Greenwald, Bruce
  • Stiglitz, Joseph E

Abstract

This paper shows that market economies with search and in which wages are affected by efficiency wage considerations are not constrained Pareto efficient. Wages are not set at Pareto efficient levels, nor is the level of employment (unemployment) Pareto efficient. We identify the nature of the biases and the welfare improving government interventions.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 78 (1988)
Issue (Month): 2 (May)
Pages: 351-55

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Handle: RePEc:aea:aecrev:v:78:y:1988:i:2:p:351-55

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References

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  1. Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 229-64, May.
  2. Pissarides, Christopher A, 1984. "Search Intensity, Job Advertising, and Efficiency," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 128-43, January.
  3. Hosios, Arthur J, 1984. "A Welfare Analysis of Employment Contracts with and without Asymmetric Information," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 471-89, July.
  4. Arnott, Richard J & Stiglitz, Joseph E, 1985. "Labor Turnover, Wage Structures, and Moral Hazard: The Inefficiency of Competitive Markets," Journal of Labor Economics, University of Chicago Press, vol. 3(4), pages 434-62, October.
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Cited by:
  1. John Knight & Linda Yueh & Linda Y. Yueh, 2003. "Job Mobility of Residents and Migrants in Urban China," Economics Series Working Papers 163, University of Oxford, Department of Economics.
  2. Stiglitz, Joseph E., 2002. "New perspectives on public finance: recent achievements and future challenges," Journal of Public Economics, Elsevier, vol. 86(3), pages 341-360, December.
  3. François Contensou & Radu Vranceanu, 1998. "A model of working time under utility competition in the labor market," Journal of Economics, Springer, vol. 67(2), pages 145-166, June.
  4. Giulio Palermo, 2005. "Misconceptions of Power: From Alchian and Demsetz to Bowles and Gintis," Working Papers ubs0510, University of Brescia, Department of Economics.
  5. Roger E. A. Farmer, 2012. "Confidence, Crashes and Animal Spirits," Economic Journal, Royal Economic Society, vol. 122(559), pages 155-172, 03.
  6. Radu Vranceanu & François Contensou, 1996. "Structure de coût généralisée et horaire optimal," Économie et Prévision, Programme National Persée, vol. 125(4), pages 37-50.

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