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The Mortensen rule and efficient coordination unemployment

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  • Julien, Benoit
  • Kennes, John
  • King, Ian

Abstract

We study the implementation of constrained-efficient allocations in labour markets where a basic coordination problem leads to an equilibrium matching function. We argue that these allocations can be achieved in equilibrium if wages are determined by ex post bidding. This holds true even in finite sized markets where the equilibrium matching function has decreasing returns to scale where the Hosios rule does not apply to both with and without heterogeneity. This wage determination mechanism is similar to the one proposed by Mortensen (1982) in a different setting.
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  • Julien, Benoit & Kennes, John & King, Ian, 2006. "The Mortensen rule and efficient coordination unemployment," Economics Letters, Elsevier, vol. 90(2), pages 149-155, February.
  • Handle: RePEc:eee:ecolet:v:90:y:2006:i:2:p:149-155
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    1. Benoît Julien & John Kennes & Ian King, 2002. "Auctions Beat Posted Prices in a Small Market," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(4), pages 548-562, December.
    2. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
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    4. Lars Ljungqvist & Thomas J. Sargent, 2004. "Recursive Macroeconomic Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026212274x, December.
    5. King, Ian & Kennes, John & Julien, Benoit, 2001. "Residual Wage Disparity in Directed Search Equilibrium," Working Papers 209, Department of Economics, The University of Auckland.
    6. Groes, Ebbe & Tranaes, Torben, 1999. "On the Efficiency of Decentralized Exchange with Resale Possibilities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 423-438, May.
    7. Kultti, Klaus, 1999. "Equivalence of Auctions and Posted Prices," Games and Economic Behavior, Elsevier, vol. 27(1), pages 106-113, April.
    8. Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
    9. Moen, Espen R, 1999. "Education, Ranking, and Competition for Jobs," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 694-723, October.
    10. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
    11. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-979, December.
    12. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
    13. Daron Acemoglu & Robert Shimer, 2000. "Wage and Technology Dispersion," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 585-607.
    14. James D. Montgomery, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 163-179.
    15. Shi, Shouyong, 2001. "Frictional Assignment. I. Efficiency," Journal of Economic Theory, Elsevier, vol. 98(2), pages 232-260, June.
    16. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
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    Citations

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    Cited by:

    1. Kennes, John & le Maire, Daniel & Roelsgaard, Sebastian T., 2020. "Equivalence of canonical matching models," Games and Economic Behavior, Elsevier, vol. 124(C), pages 169-182.
    2. Aaron Schiff & Martin Browning & John Kennes, 2005. "Lots of Heterogeneity in a Matching Model," 2005 Meeting Papers 799, Society for Economic Dynamics.
    3. Basov, Suren & King, Ian & Uren, Lawrence, 2014. "Worker heterogeneity, the job-finding rate, and technical change," European Economic Review, Elsevier, vol. 70(C), pages 159-177.
    4. John Kennes & Aaron Schiff, 2003. "The Value of a Reputation System," Industrial Organization 0301011, University Library of Munich, Germany.
    5. John Kennes & Daniel le Maire, 2013. "Competing Auctions of Skills," CAM Working Papers 2014_01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    6. Klaus Kultti & Tuomas Takalo & Oskari Vähämaa, 2021. "Intermediation in a directed search model," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(2), pages 456-471, May.
    7. Suren Basov & John Ian King & Lawrence Uren, 2010. "The Employed, the Unemployed, and the Unemployable: Directed Search with Worker Heterogeneity," Working Papers 2010.03, School of Economics, La Trobe University.
    8. Mortensen, Dale T., 2009. "Island matching," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2336-2353, November.
    9. Gautier, Pieter A & Holzner, Christian, 2011. "Simultaneous Search and Network Efficiency," CEPR Discussion Papers 8522, C.E.P.R. Discussion Papers.
    10. John Kennes, 2004. "Competitive Auctions: Theory and Application," Discussion Papers 04-16, University of Copenhagen. Department of Economics.
    11. Benoît Julien & John Kennes & Ian King & Sephorah Mangin, 2009. "Directed search, unemployment and public policy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(3), pages 956-983, August.
    12. Masters, Adrian, 2010. "A theory of minimum wage compliance (or voluntary recognition of unions)," Labour Economics, Elsevier, vol. 17(1), pages 215-223, January.
    13. Adrian Masters, 2005. "Directed search without wage commitment: a new role for minimum wages and unions," 2005 Meeting Papers 347, Society for Economic Dynamics.
    14. Benoit Julien & John Kennes & Moritz Ritter, 2013. "Bidding for Clubs," Economics Working Papers 2013-19, Department of Economics and Business Economics, Aarhus University.
    15. Adrian Masters, 2005. "Directed Search without Wage Commitment and the Role of Labor Market Institutions," Discussion Papers 05-02, University at Albany, SUNY, Department of Economics.
    16. Halko, Marja-Liisa & Kultti, Klaus & Niinimaki, Juha-Pekka, 2007. "Evolutionary stability of trading rules in an urn-ball matching model," Research in Economics, Elsevier, vol. 61(1), pages 11-15, March.
    17. Klaus Kultti, 2010. "Inefficiency caused by random matching and heterogeneity," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 9(1), pages 19-28, April.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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