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Heterogeneous Firms in a Finite Directed Search Economy

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  • Manolis Galenianos

    ()
    (Department of Economics, Penn State University)

  • Philipp Kircher

    ()
    (Department of Economics)

Abstract

We consider a directed search model for a finite economy with heterogeneous firms in two informational environments. In the first, the productivity of all firms is publicly observed. We prove existence of equilibria in pure posting strategies by firms and show that wage dispersion is driven by fundamentals. That is, more productive firms post higher wages and wage dispersion is absent when firms are homogeneous. When firms have heterogeneous productivities the equilibrium is not constrained efficient. In the second environment the productivity level of each firm is private information. The main results extend to this environment: Equilibria in pure strategies exist; strategies are increasing in productivity; and constrained efficiency does not obtain. When the productivity level of all firms is drawn from the same distribution, symmetric equilibria exist and the ranking of wages equals that of productivity.

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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 07-003.

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Length: 31 pages
Date of creation: 03 Jan 2007
Date of revision:
Handle: RePEc:pen:papers:07-003

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Keywords: Directed Search; Labor Search; Market Power; Wage Differentials; Efficiency;

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References

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  1. Albrecht, James & Gautier, Pieter & Vroman, Susan, 2003. "Equilibrium Directed Search with Multiple Applications," IZA Discussion Papers 719, Institute for the Study of Labor (IZA).
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  8. Athey, Susan, 2001. "Single Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Econometrica, Econometric Society, vol. 69(4), pages 861-89, July.
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  14. Philip J. Reny, 1999. "On the Existence of Pure and Mixed Strategy Nash Equilibria in Discontinuous Games," Econometrica, Econometric Society, vol. 67(5), pages 1029-1056, September.
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  18. Galenianos, Manolis & Kircher, Philipp, 2009. "Directed search with multiple job applications," Journal of Economic Theory, Elsevier, vol. 144(2), pages 445-471, March.
  19. Dale T. Mortensen & Randall Wright, 2002. "Competitive Pricing and Efficiency in Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 1-20, February.
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Citations

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Cited by:
  1. Ken Hori, 2007. "Wage-Directed Job Match with Multiple Applications and Multiple Vacancies: The Optimal Job Application Strategy and Wage Dispersion," Birkbeck Working Papers in Economics and Finance 0711, Birkbeck, Department of Economics, Mathematics & Statistics.
  2. Philipp Kircher & Gabor Virag & Manolis Galenianos, 2009. "Market Power and Efficiency in a Search Model," 2009 Meeting Papers 519, Society for Economic Dynamics.
  3. Manolis Galenianos & Philipp Kircher & Gabor Virag, 2011. "Market power and efficiency in a search model," LSE Research Online Documents on Economics 29706, London School of Economics and Political Science, LSE Library.

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