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Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium

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  • Masters, Adrian

Abstract

Competitive search entails both commitment to and advertising of pay-off relevant aspects of market participants. This paper considers incrementally the implications of each in a labor market where both workers and firms invest prior to market entry. A wide range of institutional arrangements are addressed within the same general framework. When the characteristics of jobs or workers are advertised the efficient outcome pertains. Commitment without advertising typically leads to market unravelling: the Diamond paradox. But, whenever wages and human capital are advertised, firms become residual claimants; the private and social returns to investment coincide. Absent wage commitment, the Hosios condition implies efficiency when investments are advertised.

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  • Masters, Adrian, 2011. "Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1017-1031, July.
    • Handle: RePEc:eee:dyncon:v:35:y:2011:i:7:p:1017-1031
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    Cited by:

    1. Adrian Masters, 2010. "Money in a Model of Prior Production and Imperfectly Directed Search," Discussion Papers 10-11, University at Albany, SUNY, Department of Economics.
    2. George J. Mailath & Andrew Postlewaite & Larry Samuelson, 2017. "Premuneration Values and Investments in Matching Markets," Economic Journal, Royal Economic Society, vol. 127(604), pages 2041-2065, September.
    3. Mangin, Sephorah & Julien, Benoît, 2021. "Efficiency in search and matching models: A generalized Hosios condition," Journal of Economic Theory, Elsevier, vol. 193(C).
    4. Kawata, Keisuke & Nakajima, Kentaro & Sato, Yasuhiro, 2016. "Multi-region job search with moving costs," Regional Science and Urban Economics, Elsevier, vol. 61(C), pages 114-129.
    5. Keisuke Kawata & Kentaro Nakajima & Yasuhiro Sato, 2013. "Analyzing the impact of labor market integration," Discussion Papers in Economics and Business 13-28, Osaka University, Graduate School of Economics.
    6. Yujing Xu, 2022. "Unobservable investments, trade efficiency and search frictions," Post-Print hal-03848827, HAL.
    7. Mailath, George J. & Postlewaite, Andrew & Samuelson, Larry, 2013. "Pricing and investments in matching markets," Theoretical Economics, Econometric Society, vol. 8(2), May.
    8. Katsuya Takii, 2014. "Advertisement versus Motivation in Competitive Search Equilibrium," OSIPP Discussion Paper 14E009, Osaka School of International Public Policy, Osaka University.
    9. Adrian Masters, 2012. "The value of leisure or disutility of work: Wage dispersion in a model of search with endogenous effort," Discussion Papers 12-07, University at Albany, SUNY, Department of Economics.
    10. Jerez, Belén, 2017. "Competitive search equilibrium with multidimensional heterogeneity and two-sided ex-ante investments," Journal of Economic Theory, Elsevier, vol. 172(C), pages 202-219.
    11. Wright, Randall & Xiao, Sylvia Xiaolin & Zhu, Yu, 2018. "Frictional capital reallocation I: Ex ante heterogeneity," Journal of Economic Dynamics and Control, Elsevier, vol. 89(C), pages 100-116.
    12. Randall Wright & Philipp Kircher & Benoit Julîen & Veronica Guerrieri, 2017. "Directed Search: A Guided Tour," NBER Working Papers 23884, National Bureau of Economic Research, Inc.
    13. Yujing Xu, 2022. "Unobservable investments, trade efficiency and search frictions," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(2), pages 764-799, May.
    14. Masters, Adrian, 2016. "On the firms’ component of wage dispersion: Endogenous effort versus search frictions," Labour Economics, Elsevier, vol. 42(C), pages 213-220.
    15. Darong Dai & Guoqiang Tian, 2020. "On the Efficiency of Wage-Setting Mechanisms with Search Frictions and Human Capital Investment," Annals of Economics and Finance, Society for AEF, vol. 21(1), pages 1-40, May.
    16. KAWATA Keisuke & NAKAJIMA Kentaro & SATO Yasuhiro, 2014. "Competitive Search with Moving Costs," Discussion papers 14052, Research Institute of Economy, Trade and Industry (RIETI).
    17. Randall Wright & Sylvia Xiao & Yu Zhu, 2020. "Frictional Capital Reallocation with Ex Post Heterogeneity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 227-253, August.

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