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Pareto Inefficiency of Market Economies: Search and Efficiency Wage Models

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  • Bruce Greenwald
  • Joseph E. Stiglitz

Abstract

This paper shows that market economies with search and in which wages are affected by efficiency wage considerations are not constrained Pareto efficient. Wages are not set at Pareto efficient levels, nor is the level of employment (unemployment) Pareto efficient. We identify the nature of the biases and the welfare improving government interventions.

Suggested Citation

  • Bruce Greenwald & Joseph E. Stiglitz, 1988. "Pareto Inefficiency of Market Economies: Search and Efficiency Wage Models," NBER Working Papers 2651, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2651
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    1. Pissarides, Christopher A, 1984. "Search Intensity, Job Advertising, and Efficiency," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 128-143, January.
    2. Arthur J. Hosios, 1984. "A Welfare Analysis of Employment Contracts with and without Asymmetric Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 471-489.
    3. Bruce C. Greenwald & Joseph E. Stiglitz, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 229-264.
    4. Arnott, Richard J & Stiglitz, Joseph E, 1985. "Labor Turnover, Wage Structures, and Moral Hazard: The Inefficiency of Competitive Markets," Journal of Labor Economics, University of Chicago Press, vol. 3(4), pages 434-462, October.
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    1. #goofy5
      by Alberto Bagnai in Goofynomics on 2016-09-12 15:19:00

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    5. François Contensou & Radu Vranceanu, 1996. "Structure de coût généralisée et horaire optimal," Économie et Prévision, Programme National Persée, vol. 125(4), pages 37-50.
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    15. François Contensou & Radu Vranceanu, 1998. "A model of working time under utility competition in the labor market," Journal of Economics, Springer, vol. 67(2), pages 145-166, June.
    16. Bedi, Arjun S., 1999. "The Role of Information and Communication Technologies in Economic Development: A Partial Survey," Discussion Papers 279848, University of Bonn, Center for Development Research (ZEF).
    17. Guler, Ozan & Mariathasan, Mike & Mulier, Klaas & Okatan, Nejat G., 2019. "The Real Effects of Credit Supply: Review, Synthesis, and Future Directions," MPRA Paper 96542, University Library of Munich, Germany.
    18. Giulio Palermo, 2005. "Misconceptions of Power: From Alchian and Demsetz to Bowles and Gintis," Working Papers ubs0510, University of Brescia, Department of Economics.
    19. Farmer, Roger, 2011. "Animal Spirits, Financial Crises and Persistent Unemployment," CEPR Discussion Papers 8439, C.E.P.R. Discussion Papers.
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