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Efficiency in Search and Matching Models: A Generalized Hosios Condition

Author

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  • Benoît Julien
  • Sephorah Mangin

Abstract

This paper generalizes the well-known Hosios (1990) efficiency condition to dynamic search and matching environments where the expected match output depends on the market tightness. Such environments give rise to a novel externality – the output externality – which may be either positive or negative. The generalized Hosios condition is simple: entry is constrained efficient when buyers’ surplus share equals the matching elasticity plus the surplus elasticity (i.e. the elasticity of the expected joint match surplus with respect to buyers). This intuitive condition captures both the standard externalities generated by the frictional matching process and the output externality.

Suggested Citation

  • 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.
  • Handle: RePEc:mos:moswps:2016-28
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    References listed on IDEAS

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    Cited by:

    1. Sengul, Gonul, 2017. "Effect of labor market policies on unemployment when firms adapt their recruitment strategy," Economic Modelling, Elsevier, vol. 60(C), pages 169-179.
    2. Julien, Benoît & Mangin, Sephorah, 2017. "Efficiency of job creation in a search and matching model with labor force participation," Economics Letters, Elsevier, vol. 150(C), pages 149-151.
    3. Randall Wright & Philipp Kircher & Benoit Julîen & Veronica Guerrieri, 2017. "Directed Search: A Guided Tour," NBER Working Papers 23884, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    constrained efficiency; search and matching; directed search; competitive search; Nash bargaining; Hosios condition;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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