Inefficient Unemployment Dynamics under Asymmetric Information
I explore the efficiency properties of a competitive search model with match-specific private information and limited commitment on the workers' side. In a static setting the competitive search equilibrium is constrained efficient, whereas in a dynamic setting it is constrained inefficient whenever the initial unemployment rate is different from its steady-state level. Inefficiency arises because the workers' outside option becomes endogenous and affects the severity of the distortion due to the informational friction. This generates a novel externality: firms offering contracts at a given time do not internalize their effect on the outside option of workers hired in previous periods. (c) 2008 by The University of Chicago. All rights reserved.
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.:
- Mortensen, Dale & Pissarides, Christopher, 2011.
"Job Creation and Job Destruction in the Theory of Unemployment,"
Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 19pages-19p.
- Dale T. Mortensen & Christopher A. Pissarides, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 397-415.
- Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
- Prescott, Edward C & Townsend, Robert M, 1984.
"Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard,"
Econometric Society, vol. 52(1), pages 21-45, January.
- Edward C Prescott & Robert M Townsend, 2010. "Pareto Optima and Competitive Equilibria With Adverse Selection and Moral Hazard," Levine's Working Paper Archive 2069, David K. Levine.
When requesting a correction, please mention this item's handle: RePEc:ucp:jpolec:v:116:y:2008:i:4:p:667-708. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
If references are entirely missing, you can add them using this form.