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Unstable Relationships

Listed author(s):
  • Burdett Kenneth

    ()

    (University of Pennsylvania)

  • Imai Ryoichi

    ()

    (Kyushu University)

  • Wright Randall

    ()

    (University of Pennsylvania)

We analyze models where agents search for partners to form relationships (employment, marriage, etc.), and may or may not continue searching for different partners while matched. Matched agents are less inclined to search if their match yields more utility, and also if it is more stable. If one partner searches the relationship is less stable, so the other is more inclined to search, potentially making instability a self-fulfilling prophecy. We show this can generate multiple -- indeed, a continuum of -- equilibria. We investigate efficiency and show that in any equilibrium there tends to be too much turnover, unemployment, and inequality. We calibrate an example to see how well the model can account for job-to-job transitions, and to see how much endogenous instability matters.

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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 1 (2004)
Issue (Month): 1 (January)
Pages: 1-44

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Handle: RePEc:bpj:bejmac:v:frontiers.1:y:2004:i:1:n:1
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  1. Garey Ramey & Joel Watson, 1997. "Contractual Fragility, Job Destruction, and Business Cycles," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 873-911.
  2. Christopher A. Pissarides, 1994. "Search Unemployment with On-the-job Search," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 457-475.
  3. Blau, David M & Robins, Philip K, 1990. "Job Search Outcomes for the Employed and Unemployed," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 637-655, June.
  4. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
  5. Bruce C. Fallick & Charles A. Fleischman, 2001. "The importance of employer-to-employer flows in the U.S. labor market," Finance and Economics Discussion Series 2001-18, Board of Governors of the Federal Reserve System (U.S.).
  6. Masters, Adrian M, 1999. "Wage Posting in Two-Sided Search and the Minimum Wage," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 809-826, November.
  7. Dale T. Mortensen, 1978. "Specific Capital and Labor Turnover," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 572-586, Autumn.
  8. Dale T. Mortensen, 1978. "Specific Capital, Bargaining, and Labor Turnover," Discussion Papers 320, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Kranton, Rachel E, 1996. "The Formation of Cooperative Relationships," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 214-233, April.
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