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Incentives in Competitive Search Equilibrium

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  • Espen R. Moen
  • Åsa Rosén

Abstract

This paper proposes a labour market model with job search frictions where workers have private information on match quality and effort. Firms use wage contracts to motivate workers. In addition, wages are also used to attract employees. We define and characterize competitive search equilibrium in this context, and show that it satisfies a simple modified Hosios rule. We also analyse the interplay between macroeconomic variables and optimal wage contracts. Finally, we show that private information may increase the responsiveness of the unemployment rate to changes in the aggregate productivity level and, in particular, to changes in the information structure. Copyright 2011, Oxford University Press.

Suggested Citation

  • Espen R. Moen & Åsa Rosén, 2011. "Incentives in Competitive Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 78(2), pages 733-761.
    • Handle: RePEc:oup:restud:v:78:y:2011:i:2:p:733-761
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    File URL: http://hdl.handle.net/10.1093/restud/rdq011
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    References listed on IDEAS

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    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, January.
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    Citations

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    Cited by:

    1. Di Pace, F. & Faccini, R., 2012. "Deep habits and the cyclical behaviour of equilibrium unemployment and vacancies," Journal of Economic Dynamics and Control, Elsevier, vol. 36(2), pages 183-200.
    2. Manolis Galenianos & Philipp Kircher, 2012. "On The Game‐Theoretic Foundations Of Competitive Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 1-21, February.
    3. Menzio, Guido & Moen, Espen R., 2010. "Worker replacement," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 623-636, September.
    4. Mangin, Sephorah, 2017. "A theory of production, matching, and distribution," Journal of Economic Theory, Elsevier, vol. 172(C), pages 376-409.
    5. Benoît Julien & Sephorah Mangin, 2016. "Efficiency in Search and Matching Models: A Generalized Hosios Condition," Monash Economics Working Papers 28-16, Monash University, Department of Economics.
    6. Mohammad Davoodalhosseini, 2017. "Constrained Efficiency with Adverse Selection and Directed Search," Staff Working Papers 17-15, Bank of Canada.
    7. Philipp Kircher & Jan Eeckhout, 2008. "Prices as Optimal Competitive Sales Mechanisms," 2008 Meeting Papers 504, Society for Economic Dynamics.
    8. Jerez, Belén, 2014. "Competitive equilibrium with search frictions: A general equilibrium approach," Journal of Economic Theory, Elsevier, vol. 153(C), pages 252-286.
    9. Wang, Cheng & Yang, Youzhi, 2015. "Equilibrium matching and termination," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 208-229.
    10. Jerez, Belén, 2016. "Competitive Search Equilibrium with Multidimensional Heterogeneity and Two-Sided Ex-ante Investments," UC3M Working papers. Economics 23566, Universidad Carlos III de Madrid. Departamento de Economía.
    11. Faccini, Renato & Rosazza Bondibene, Chiara, 2012. "Labour market institutions and unemployment volatility: evidence from OECD countries," Bank of England working papers 461, Bank of England.

    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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