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On the Optimality of Search Matching Equilibrium When Workers Are Risk Averse

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  • Lehmann, Etienne

    ()
    (CRED, Université Panthéon Assas Paris 2)

  • Van der Linden, Bruno

    ()
    (IRES, Université catholique de Louvain)

Abstract

This paper revisits the normative properties of search-matching economies when homogeneous workers have concave utility functions and wages are bargained over. The optimal allocation of resources is characterized first when information is perfect and second when search effort is not observable. To decentralize these optima, employees should be unable to extract a rent when information is perfect. An appropriate positive rent is however needed in the second case. To implement these optima, non-linear income taxation is a key complement to unemployment insurance. According to the level of the workers’ bargaining power, taxation has to be progressive

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1172.

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Length: 40 pages
Date of creation: Jun 2004
Date of revision:
Publication status: published in: Journal of Public Economic Theory, 2007, 9 (5), 867-884
Handle: RePEc:iza:izadps:dp1172

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Keywords: matching; moral hazard; unemployment benefits; non-linear taxation; unemployment; search;

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References

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  9. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, Elsevier, vol. 42(1), pages 155-183, January.
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  19. Mathias, HUNGERBUELHER & Etienne, LEHMANN & Alexis PARMENTIER & Bruno VAN DER LINDEN, 2003. "Optimal Income Taxation in an Equilibrium Unemployment Model : Mirrlees meets Pissarides," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2003024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  20. Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, Elsevier, vol. 52(1), pages 1-29, August.
  21. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 2122, London School of Economics and Political Science, LSE Library.
  22. Holmlund, B. & Kolm, A.S., 1995. "Progressive Taxation, Wage Setting, and Unemployment , Theory and Swedish Evidence," Papers, Uppsala - Working Paper Series 1995-15, Uppsala - Working Paper Series.
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