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Efficiency of Simultaneous Search

  • Philipp Kircher

    ()

    (Department of Economics, University of Pennsylvania)

We analyze a labor search model in which workers choose their search intensity by deciding how often and where to apply for jobs. They observe firms’ wage postings prior to their decision. Due to coordination frictions a firm may not receive any applications; otherwise it is able to hire unless all its applicants have better offers. We show that in equilibrium the entry of firms, the search intensity and the number of filled vacancies are constrained efficient. Wage dispersion creates an (endogenous) safety net against unemployment that is essential for efficiency. As application costs vanish the equilibrium becomes unconstrained efficient.

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File URL: http://economics.sas.upenn.edu/system/files/working-papers/08-004.pdf
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Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 08-004.

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Length: 46 pages
Date of creation: 03 Jan 2008
Date of revision:
Handle: RePEc:pen:papers:08-004
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