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Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium

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  • Adrian Masters

    (University at Albany, SUNY)

Abstract

This paper examines the role of commitment and advertising in the labor market for the determination of the levels of wages, human capital and physical capital. In a competitive search framework it is shown that when the characteristics of jobs or workers become common knowledge (so that the other side of the market can use those characteristics as a basis for search) the efficient outcome pertains. Which side of the market advertises a particular characteristic (or a requirement for that characteristic) does not matter for the outcomes. When there is no wage commitment but investments are common knowledge the Hosios condition is shown to bring about efficiency on every margin.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 260.

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Date of creation: 2008
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Handle: RePEc:red:sed008:260

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  1. George J. Mailath & Andrew Postlewaite & Larry Samuelson, 2010. "Pricing in Matching Markets," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1752, Cowles Foundation for Research in Economics, Yale University.
  2. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum, Oslo University, Department of Economics 37/1995, Oslo University, Department of Economics.
  3. Moen, Espen R, 1999. "Education, Ranking, and Competition for Jobs," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 17(4), pages 694-723, October.
  4. Guillaume Rocheteau & Randall Wright, 2005. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 73(1), pages 175-202, 01.
  5. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  6. Galenianos, Manolis & Kircher, Philipp, 2009. "Directed search with multiple job applications," Journal of Economic Theory, Elsevier, Elsevier, vol. 144(2), pages 445-471, March.
  7. Veronica Guerrieri & Robert Shimer & Randall Wright, 2009. "Adverse Selection in Competitive Search Equilibrium," NBER Working Papers 14915, National Bureau of Economic Research, Inc.
  8. Philipp Kircher & Jan Eeckhout, 2008. "Prices as Optimal Competitive Sales Mechanisms," 2008 Meeting Papers, Society for Economic Dynamics 504, Society for Economic Dynamics.
  9. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 25-49, March.
  10. Guido Menzio, 2007. "A Theory of Partially Directed Search," PIER Working Paper Archive, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 09-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  11. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, Elsevier, vol. 3(2), pages 156-168, June.
  12. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262161877, December.
  13. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-49, November.
  14. Shouyong Shi, 2005. "Frictional Assignment, Part II: Infinite Horizon and Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 106-137, January.
  15. Acemoglu, Daron, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(3), pages 779-804, August.
  16. Shi, Shouyong, 2001. "Frictional Assignment. I. Efficiency," Journal of Economic Theory, Elsevier, Elsevier, vol. 98(2), pages 232-260, June.
  17. Veronica Guerrieri, 2008. "Inefficient Unemployment Dynamics under Asymmetric Information," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 116(4), pages 667-708, 08.
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Cited by:
  1. George J. Mailath & Andrew Postlewaite & Larry Samuelson, 2011. "Pricing and Investments in Matching Markets," Levine's Working Paper Archive 786969000000000162, David K. Levine.
  2. Adrian Masters, 2010. "Money in a Model of Prior Production and Imperfectly Directed Search," Discussion Papers, University at Albany, SUNY, Department of Economics 10-11, University at Albany, SUNY, Department of Economics.
  3. Keisuke Kawata & Kentaro Nakajima & Yasuhiro Sato, 2013. "Analyzing the impact of labor market integration," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 13-28, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  4. George Mailath & Andrew Postlewaite & Larry Samuelson, 2012. "Premuneration Values and Investments in Matching Markets," PIER Working Paper Archive, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 12-008, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  5. Adrian Masters, 2012. "The value of leisure or disutility of work: Wage dispersion in a model of search with endogenous effort," Discussion Papers, University at Albany, SUNY, Department of Economics 12-07, University at Albany, SUNY, Department of Economics.

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