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Incentives in Competitive Search Equilibrium

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  • Espen R. Moen
  • A Rosen

Abstract

This paper analyses the interaction between internal agency problems within firms and external search frictions when workers have private information. We show that the allocation of resources is determined by a modified Hosios Rule. We then analyze the effect of changes in the macro economic variables on the wage contract and the unemployment rate. We find that private information may increase the responsiveness of the unemployment rate to changes in productivity. The incentive power of the wage contracts is positively related to high productivity, low unemployment benefits and high search frictions.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0832.

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Date of creation: Nov 2007
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Handle: RePEc:cep:cepdps:dp0832

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

Keywords: Private information; incentives; search; unemployment; wage rigidity;

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  1. Mirabelle Mu�ls & Mauro Pisu, 2009. "Imports and Exports at the Level of the Firm: Evidence from Belgium," The World Economy, Wiley Blackwell, vol. 32(5), pages 692-734, 05.
  2. Christos Genakos & Tommaso Valletti, 2008. "Testing the “Waterbed” Effect in Mobile Telephony," CEIS Research Paper 110, Tor Vergata University, CEIS, revised 11 Jul 2008.
  3. Henry G. Overman & Patricia Rice & Anthony J. Venables, 2010. "Economic linkages across space," LSE Research Online Documents on Economics 30779, London School of Economics and Political Science, LSE Library.
  4. Yashiv, Eran, 2006. "U.S. Labor Market Dynamics Revisited," IZA Discussion Papers 2455, Institute for the Study of Labor (IZA).
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Cited by:
  1. Menzio, Guido & Moen, Espen R, 2008. "Worker Replacement," CEPR Discussion Papers 7075, C.E.P.R. Discussion Papers.
  2. Philipp Kircher & Jan Eeckhout, 2008. "Prices as Optimal Competitive Sales Mechanisms," 2008 Meeting Papers 504, Society for Economic Dynamics.
  3. Niko Matouschek & Paolo Ramezzana & Frédéric Robert-Nicoud, 2008. "Labor market reforms, job instability, and the flexibility of the employment relationship," LSE Research Online Documents on Economics 19599, London School of Economics and Political Science, LSE Library.
  4. Di Pace, F. & Faccini, R., 2012. "Deep habits and the cyclical behaviour of equilibrium unemployment and vacancies," Journal of Economic Dynamics and Control, Elsevier, vol. 36(2), pages 183-200.
  5. Faccini, Renato & Rosazza Bondibene, Chiara, 2012. "Labour market institutions and unemployment volatility: evidence from OECD countries," Bank of England working papers 461, Bank of England.
  6. Pedro Gomes & Javier Fernandez-Blanco, 2013. "On the Composition Effects on the Labor Market Outcomes," 2013 Meeting Papers 561, Society for Economic Dynamics.
  7. Manolis Galenianos & Philipp Kircher, 2012. "On the game-theoretic foundations of competitive search equilibrium," LSE Research Online Documents on Economics 29707, London School of Economics and Political Science, LSE Library.

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