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On the Optimality of Search Matching Equilibrium when workers are risk adverse

  • LEHMANN E.
  • VAN DER LINDEN B.

This paper revisits the normative properties of search-matching economies when homogeneous workers have concave utility functions and wages are bargained over. The optimal allocation of resources is characterized first when information is perfect and second when search effort is not observable. To decentralize these optima, employees should be unable to extract a rent when information is perfect. An appropriate positive rent is however needed in the second case. To implement these optima, non-linear income taxation is a key complement to unemployment insurance. According to the level of the workers’ bargaining power, taxation has to be progressive

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Paper provided by ERMES, University Paris 2 in its series Working Papers ERMES with number 0406.

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Date of creation: 2004
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Handle: RePEc:erm:papers:0406
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  1. Christopher A. Pissarides, 1997. "The Impact of Employment Tax Cuts on Unemployment and Wages: The Role of Unemployment Benefits and Tax Structure," CEP Discussion Papers dp0361, Centre for Economic Performance, LSE.
  2. Fuest, Clemens & Huber, Bernd, 2000. "Is tax progression really good for employment? A model with endogenous hours of work," Labour Economics, Elsevier, vol. 7(1), pages 79-93, January.
  3. Jan Boone & Peter Fredriksson & Bertil Holmlund & Jan C. van Ours, 2001. "Optimal Unemployment Insurance with Monitoring and Sanctions," CESifo Working Paper Series 616, CESifo Group Munich.
  4. M. Hungerbühler & E. Lehmann & A. Parmentier & P. Van Der Linden, 2003. "Optimal Income Taxation in an Equilibrium Unemployment Model : Mirrlees meets Pissarides," Working Papers ERMES 0306, ERMES, University Paris 2.
  5. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
  6. Sorensen, Peter Birch, 1999. "Optimal tax progressivity in imperfect labour markets," Labour Economics, Elsevier, vol. 6(3), pages 435-452, September.
  7. Holmlund, B. & Kolm, A.S., 1995. "Progressive Taxation, Wage Setting, and Unemployment , Theory and Swedish Evidence," Papers 1995-15, Uppsala - Working Paper Series.
  8. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
  9. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  10. Holmlund, B., 1997. "Unemployment Insurance in Theory and Practice," CEPR Discussion Papers 380, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  11. Robin Boadway & Katherine Cuff, 1999. "Monitoring Job Search as an Instrument For Targeting Transfers," International Tax and Public Finance, Springer, vol. 6(3), pages 317-337, August.
  12. Fredriksson, Peter & Holmlund, Bertil, 2001. "Optimal Unemployment Insurance in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 370-99, April.
  13. Cahuc, Pierre & Lehmann, Etienne, 2000. "Should unemployment benefits decrease with the unemployment spell?," Journal of Public Economics, Elsevier, vol. 77(1), pages 135-153, July.
  14. Boone, Jan & Bovenberg, Lans, 2004. "The optimal taxation of unskilled labor with job search and social assistance," Journal of Public Economics, Elsevier, vol. 88(11), pages 2227-2258, September.
  15. Jan Boone & Ruud de Mooij, 2000. "Tax policy in a model of search with training," CPB Research Memorandum 161, CPB Netherlands Bureau for Economic Policy Analysis.
  16. Manning, Alan, 2004. "Monopsony and the efficiency of labour market interventions," Labour Economics, Elsevier, vol. 11(2), pages 145-163, April.
  17. Boone, Jan & van Ours, Jan C., 2000. "Modeling Financial Incentives to Get Unemployed Back to Work," IZA Discussion Papers 108, Institute for the Study of Labor (IZA).
  18. Hopenhayn, H. & Nicolini, P.J., 1996. "Optimal Unemployment Insurance," RCER Working Papers 421, University of Rochester - Center for Economic Research (RCER).
  19. Sherwin Rosen, 1985. "Implicit Contracts: A Survey," NBER Working Papers 1635, National Bureau of Economic Research, Inc.
  20. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  21. Boone, J. & Bovenberg, A.L., 2000. "Optimal Labour Taxation and Search," Discussion Paper 2000-17, Tilburg University, Center for Economic Research.
  22. repec:dgr:kubcen:200185 is not listed on IDEAS
  23. Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
  24. repec:dgr:kubcen:200017 is not listed on IDEAS
  25. Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation for Research in Economics, Yale University.
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