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On the Optimality of Search Matching Equilibrium When Workers Are Risk Averse

  • Lehmann, Etienne

    ()

    (CRED, Université Panthéon Assas Paris 2)

  • Van der Linden, Bruno

    ()

    (IRES, Université catholique de Louvain)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1172.

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Length: 40 pages
Date of creation: Jun 2004
Date of revision:
Publication status: published in: Journal of Public Economic Theory, 2007, 9 (5), 867-884
Handle: RePEc:iza:izadps:dp1172
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