Incentives in Competititve Search Equilibrium

Published in

Review of Economic Studies 78 (2), 2011, pages 733-761

Summary

This paper analyses the interaction between internal agency problems within firms andexternal search frictions when workers have private information. We show that the allocation of resources is determined by a modified Hosios Rule. We then analyze the effect of changesin the macro economic variables on the wage contract and the unemployment rate. We findthat private information may increase the responsiveness of the unemployment rate to changes in productivity. The incentive power of the wage contracts is positively related tohigh productivity, low unemployment benefits and high search frictions.

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By Espen Moen and Åsa Rosen
Published Aug. 12, 2010 2:04 PM - Last modified June 26, 2012 3:30 PM