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Efficiency of Directed Search

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  • Philipp Kircher

    (University of Pennsylvania)

Abstract

We analyze a directed search labor market. Firms compete for labor through public wage postings. Then, workers choose their search intensity by deciding how often and where to apply for a job. In the last stage of the interaction, firms and applicants are matched according to a stable assignment. This can be interpreted as sequential offers by firms to their applicants. In contrast to models where only a single offer is made by each firm, the equilibrium is constrained efficient along the three operative margins: entry of firms, number of matches and number of applications. Surprisingly, wage dispersion is necessary for the market to achieve constrained efficiency despite homogeneity of workers and firms. For vanishing application costs the equilibrium outcome converges to the unconstrained efficient competitive outcome.

Suggested Citation

  • Philipp Kircher, 2007. "Efficiency of Directed Search," 2007 Meeting Papers 93, Society for Economic Dynamics.
  • Handle: RePEc:red:sed007:93
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    File URL: https://economicdynamics.org/meetpapers/2007/paper_93.pdf
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    References listed on IDEAS

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    1. Peters, Michael, 2000. "Limits of Exact Equilibria for Capacity Constrained Sellers with Costly Search," Journal of Economic Theory, Elsevier, vol. 95(2), pages 139-168, December.
    2. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
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    4. Stephan Lauermann, 2013. "Dynamic Matching and Bargaining Games: A General Approach," American Economic Review, American Economic Association, vol. 103(2), pages 663-689, April.
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    6. Timothy N. Cason & Charles Noussair, 2007. "A Market With Frictions In The Matching Process: An Experimental Study," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 665-691, May.
    7. Shouyong Shi, 2002. "A Directed Search Model of Inequality with Heterogeneous Skills and Skill-Biased Technology," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 467-491.
    8. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, March.
    9. Roth, Alvin E, 1984. "The Evolution of the Labor Market for Medical Interns and Residents: A Case Study in Game Theory," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 991-1016, December.
    10. Alain Delacroix & Shouyong Shi, 2006. "Directed Search On The Job And The Wage Ladder," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 651-699, May.
    11. Robert Shimer, 2005. "The Assignment of Workers to Jobs in an Economy with Coordination Frictions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 996-1025, October.
    12. Elliott Peranson & Alvin E. Roth, 1999. "The Redesign of the Matching Market for American Physicians: Some Engineering Aspects of Economic Design," American Economic Review, American Economic Association, vol. 89(4), pages 748-780, September.
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