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Testing optimality in job search models

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  • John W. Schindler
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    Abstract

    This paper uses Bayesian techniques to compare three definitions of optimality for the basic job search model: the standard income-maximizing definition, an approximation to the standard definition, and a simple alternative. The important role of prior choice in these comparisons is illustrated. Using natural conjugate priors to represent hypothetical samples of data, we find that the simple alternative is preferred to the standard definition of optimality. However, using priors constructed from findings in the literature, we are able to find some evidence in favor of the standard definition of optimality.

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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 710.

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    Date of creation: 2001
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    Handle: RePEc:fip:fedgif:710

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    Related research

    Keywords: Econometric models ; Job analysis;

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    References

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    1. Wolpin, Kenneth I, 1992. "The Determinants of Black-White Differences in Early Employment Careers: Search, Layoffs, Quits, and Endogenous Wage Growth," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 535-60, June.
    2. Lancaster, Tony, 1997. "Exact Structural Inference in Optimal Job-Search Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(2), pages 165-79, April.
    3. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-76, November.
    4. KIEFER, Nicholas M. & NEUMANN, George R., . "An empirical job-search model, with a test of the constant reservation-wage hypothesis," CORE Discussion Papers RP -358, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Christensen, Bent Jesper & Kiefer, Nicholas M., 1991. "The Exact Likelihood Function for an Empirical Job Search Model," Econometric Theory, Cambridge University Press, vol. 7(04), pages 464-486, December.
    6. Flinn, C. & Heckman, J., 1982. "New methods for analyzing structural models of labor force dynamics," Journal of Econometrics, Elsevier, vol. 18(1), pages 115-168, January.
    7. Dale Mortensen, 1984. "Job Search and Labor Market Analysis," Discussion Papers 594, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    8. Narendranathan, W & Nickell, S & Stern, J, 1985. "Unemployment Benefits Revisited," Economic Journal, Royal Economic Society, vol. 95(378), pages 307-29, June.
    9. repec:cup:etheor:v:7:y:1991:i:4:p:464-86 is not listed on IDEAS
    10. Gary Koop, . "Bayesian inference in models based on equilibrium search theory," ESE Discussion Papers 12, Edinburgh School of Economics, University of Edinburgh.
    11. Kiefer,Nicholas M. & Neumann,George R., 1989. "Search Models and Applied Labor Economics," Cambridge Books, Cambridge University Press, number 9780521360531.
    12. Eckstein, Zvi & Wolpin, Kenneth I, 1990. "Estimating a Market Equilibrium Search Model from Panel Data on Individuals," Econometrica, Econometric Society, vol. 58(4), pages 783-808, July.
    13. Kiefer, Nicholas M & Steel, Mark F J, 1998. "Bayesian Analysis of the Prototypal Search Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(2), pages 178-86, April.
    14. Poirier, Dale J., 1998. "Revising Beliefs In Nonidentified Models," Econometric Theory, Cambridge University Press, vol. 14(04), pages 483-509, August.
    15. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
    16. Devine, Theresa J. & Kiefer, Nicolas M., 1991. "Empirical Labor Economics: The Search Approach," OUP Catalogue, Oxford University Press, number 9780195059366, October.
    17. Koop, Gary & Potter, Simon M., 1998. "Bayes factors and nonlinearity: Evidence from economic time series1," Journal of Econometrics, Elsevier, vol. 88(2), pages 251-281, November.
    18. Khandker, Rezaul K, 1988. "Offer Heterogeneity in a Two State Model of Sequential Search," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 259-65, May.
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