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Block Recursive Equilibria for Stochastic Models of Search on the Job

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Author Info
Guido Menzio () (Department of Economics, University of Pennsylvania)
Shouyong Shi () (Department of Economics, University of Toronto)

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Abstract

In this paper, we develop a general stochastic model of directed search on the job. Like in the analogous models of random search on the job, the state of the economy in our model includes the infinite-dimensional distribution of workers across different employment states (unemployment, and employment at different wages). Unlike the analogous models of random search on the job, our model admits an equilibrium in which the agents’ value and policy functions does not depend on the distribution of workers. We refer to this type of equilibrium as a Block Recursive Equilibrium. Therefore, while solving the equilibrium of a random search model in a stochastic environment is a difficult task both analytically and computationally, solving the Block Recursive Equilibrium of our model is as easy as solving a representative agent model.

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Publisher Info
Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 09-005.

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Length: 49 pages
Date of creation: 26 Jan 2009
Date of revision:
Handle: RePEc:pen:papers:09-005

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Related research
Keywords: Directed Search; On the Job Search; Heterogeneity; Aggregate Fluctuations;

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March. [Downloadable!] (restricted)
  2. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers 3548, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Mortensen, Dale T., 1994. "The cyclical behavior of job and worker flows," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1121-1142, November. [Downloadable!] (restricted)
  4. Guido Menzio, 2007. "A Theory of Partially Directed Search," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 748-769, October. [Downloadable!] (restricted)
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  5. Shouyong Shi, 2009. "Directed Search for Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 77(2), pages 561-584, 03. [Downloadable!] (restricted)
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  6. Hall, Robert & Krueger, Alan B., 2008. "Wage Formation between Newly Hired Workers and Employers: Survey Evidence," IZA Discussion Papers 3775, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  7. Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, vol. 52(1), pages 21-45, January. [Downloadable!] (restricted)
  8. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October. [Downloadable!] (restricted)
  9. Holzer, Harry J & Katz, Lawrence F & Krueger, Alan B, 1991. "Job Queues and Wages," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 739-68, August. [Downloadable!] (restricted)
  10. Montgomery, James D, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 163-79, February. [Downloadable!] (restricted)
  11. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 893-928, October. [Downloadable!] (restricted)
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  12. Atkeson, Andrew & Lucas, Robert E, Jr, 1992. "On Efficient Distribution with Private Information," Review of Economic Studies, Blackwell Publishing, vol. 59(3), pages 427-53, July. [Downloadable!] (restricted)
  13. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
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  14. Espen R. Moen & Asa Rosén, 2004. "Does Poaching Distort Training?," Review of Economic Studies, Blackwell Publishing, vol. 71(4), pages 1143-1162, October. [Downloadable!] (restricted)
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  15. Guido Menzio & Shouyong Shi, 2009. "Efficient Search on the Job and the Business Cycle," NBER Working Papers 14905, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Barlevy, Gadi, 2002. "The Sullying Effect of Recessions," Review of Economic Studies, Blackwell Publishing, vol. 69(1), pages 65-96, January.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Guido Menzio & Shouyong Shi, 2008. "Efficient Search on the Job and the Business Cycle, Second Version," PIER Working Paper Archive 09-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 28 Feb 2009. [Downloadable!]
  2. Guido Menzio & Shouyong Shi, 2009. "Efficient Search on the Job and the Business Cycle," NBER Working Papers 14905, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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