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Testing optimality in job search models

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  • John W. Schindler

Abstract

This paper uses Bayesian techniques to compare three definitions of optimality for the basic job search model: the standard income-maximizing definition, an approximation to the standard definition, and a simple alternative. The important role of prior choice in these comparisons is illustrated. Using natural conjugate priors to represent hypothetical samples of data, we find that the simple alternative is preferred to the standard definition of optimality. However, using priors constructed from findings in the literature, we are able to find some evidence in favor of the standard definition of optimality.

Suggested Citation

  • John W. Schindler, 2001. "Testing optimality in job search models," International Finance Discussion Papers 710, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:710
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    References listed on IDEAS

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    1. Christensen, Bent Jesper & Kiefer, Nicholas M., 1991. "The Exact Likelihood Function for an Empirical Job Search Model," Econometric Theory, Cambridge University Press, vol. 7(04), pages 464-486, December.
    2. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    3. Kiefer, Nicholas M & Neumann, George R, 1979. "An Empirical Job-Search Model, with a Test of the Constant Reservation-Wage Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 87(1), pages 89-107, February.
    4. Devine, Theresa J. & Kiefer, Nicolas M., 1991. "Empirical Labor Economics: The Search Approach," OUP Catalogue, Oxford University Press, number 9780195059366.
    5. Kiefer, Nicholas M & Steel, Mark F J, 1998. "Bayesian Analysis of the Prototypal Search Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(2), pages 178-186, April.
    6. Koop, Gary, 2001. "Bayesian inference in models based on equilibrium search theory," Journal of Econometrics, Elsevier, vol. 102(2), pages 311-338, June.
    7. Mortensen, Dale T., 1987. "Job search and labor market analysis," Handbook of Labor Economics,in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 15, pages 849-919 Elsevier.
    8. Khandker, Rezaul K, 1988. "Offer Heterogeneity in a Two State Model of Sequential Search," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 259-265, May.
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    10. repec:cup:etheor:v:7:y:1991:i:4:p:464-86 is not listed on IDEAS
    11. Poirier, Dale J., 1998. "Revising Beliefs In Nonidentified Models," Econometric Theory, Cambridge University Press, vol. 14(04), pages 483-509, August.
    12. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-1676, November.
    13. Wolpin, Kenneth I, 1992. "The Determinants of Black-White Differences in Early Employment Careers: Search, Layoffs, Quits, and Endogenous Wage Growth," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 535-560, June.
    14. Lancaster, Tony, 1997. "Exact Structural Inference in Optimal Job-Search Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(2), pages 165-179, April.
    15. Flinn, C. & Heckman, J., 1982. "New methods for analyzing structural models of labor force dynamics," Journal of Econometrics, Elsevier, vol. 18(1), pages 115-168, January.
    16. Narendranathan, W & Nickell, S & Stern, J, 1985. "Unemployment Benefits Revisited," Economic Journal, Royal Economic Society, vol. 95(378), pages 307-329, June.
    17. Eckstein, Zvi & Wolpin, Kenneth I, 1990. "Estimating a Market Equilibrium Search Model from Panel Data on Individuals," Econometrica, Econometric Society, vol. 58(4), pages 783-808, July.
    18. Koop, Gary & Potter, Simon M., 1998. "Bayes factors and nonlinearity: Evidence from economic time series1," Journal of Econometrics, Elsevier, vol. 88(2), pages 251-281, November.
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    Keywords

    Econometric models ; Job analysis;

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