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The efficiency of surplus sharing

Author

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  • Nicolas Petrosky-Nadeau

    (Federal Reserve Bank of San Francisco)

  • Etienne Wasmer

    (Sciences-Po)

Abstract

What is the optimal sharing of value added between entrepreneurs, labor and creditors, and the optimal sharing between consumers and producers? We study the constrained efficiency properties of a model with search frictional credit, labor and goods markets. The social planner's allocation seeks to minimizes turnover costs in all three markets. The decentralized allocation with Nash bargaining is constrained efficient if Hosios conditions hold in each of the credit, labor and goods markets. Deviations from Hosios in the labor market can lead to either over or under hiring. Deviations from Hosios in the credit market always leads to under hiring. The effects of deviations from Hosios in the good market depend on the direction of the deviation from Hosios in the labor market.

Suggested Citation

  • Nicolas Petrosky-Nadeau & Etienne Wasmer, 2016. "The efficiency of surplus sharing," 2016 Meeting Papers 1318, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:1318
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