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Heterogeneous Firms in a Finite Directed Search Economy

Author

Listed:
  • Manolis Galenianos

    () (Department of Economics, Penn State University)

  • Philipp Kircher

    () (Department of Economics)

Abstract

We consider a directed search model for a finite economy with heterogeneous firms in two informational environments. In the first, the productivity of all firms is publicly observed. We prove existence of equilibria in pure posting strategies by firms and show that wage dispersion is driven by fundamentals. That is, more productive firms post higher wages and wage dispersion is absent when firms are homogeneous. When firms have heterogeneous productivities the equilibrium is not constrained efficient. In the second environment the productivity level of each firm is private information. The main results extend to this environment: Equilibria in pure strategies exist; strategies are increasing in productivity; and constrained efficiency does not obtain. When the productivity level of all firms is drawn from the same distribution, symmetric equilibria exist and the ranking of wages equals that of productivity.

Suggested Citation

  • Manolis Galenianos & Philipp Kircher, 2007. "Heterogeneous Firms in a Finite Directed Search Economy," PIER Working Paper Archive 07-003, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  • Handle: RePEc:pen:papers:07-003
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    References listed on IDEAS

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    Cited by:

    1. Galenianos, Manolis & Kircher, Philipp, 2009. "Directed search with multiple job applications," Journal of Economic Theory, Elsevier, vol. 144(2), pages 445-471, March.
    2. Manolis Galenianos & Philipp Kircher & Gábor Virág, 2011. "Market Power And Efficiency In A Search Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 85-103, February.
    3. Ken Hori, 2007. "Wage-Directed Job Match with Multiple Applications and Multiple Vacancies: The Optimal Job Application Strategy and Wage Dispersion," Birkbeck Working Papers in Economics and Finance 0711, Birkbeck, Department of Economics, Mathematics & Statistics.

    More about this item

    Keywords

    Directed Search; Labor Search; Market Power; Wage Differentials; Efficiency;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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