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Block Recursive Equilibria for Stochastic Models of Search on the Job

  • Shouyong Shi

    (University of Toronto)

  • Guido Menzio

    (University of Pennsylvania)

In this paper, we develop a general stochastic model of directed search on the job. Like in the analogous models of random search on the job, the state of the economy in our model includes the infinite-dimensional distribution of workers across different employment states (unemployment, and employment at different wages). Unlike the analogous models of random search on the job, our model admits an equilibrium in which the agents' value and policy functions does not depend on the distribution of workers. We refer to this type of equilibrium as a Block Recursive Equilibrium. Therefore, while solving the equilibrium of a random search model in a stochastic environment is a difficult task both analytically and computationally, solving the Block Recursive Equilibrium of our model is as easy as solving a representative agent model.

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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 177.

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Date of creation: 2009
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Handle: RePEc:red:sed009:177
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