Inefficient Unemployment Dynamics under Asymmetric Information

I explore the efficiency properties of a competitive search model with match‐specific private information and limited commitment on the workers’ side. In a static setting the competitive search equilibrium is constrained efficient, whereas in a dynamic setting it is constrained inefficient whenever...

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Bibliographic Details
Published inThe Journal of political economy Vol. 116; no. 4; pp. 667 - 708
Main Author Guerrieri, Veronica
Format Journal Article
LanguageEnglish
Published Chicago The University of Chicago Press 01.08.2008
University of Chicago, acting through its Press
Subjects
Asymmetric information
Competition
Economic commitments
Economic competition
Economic theory
Efficiency
Employment
Hiring
Information asymmetry
Job creation
Job hunting
Job search
Labor economics
Labour economics
Political economy
Search theory
Studies
Unemployment
Unemployment levels
Unemployment rates
Wages
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Summary:I explore the efficiency properties of a competitive search model with match‐specific private information and limited commitment on the workers’ side. In a static setting the competitive search equilibrium is constrained efficient, whereas in a dynamic setting it is constrained inefficient whenever the initial unemployment rate is different from its steady‐state level. Inefficiency arises because the workers’ outside option becomes endogenous and affects the severity of the distortion due to the informational friction. This generates a novel externality: firms offering contracts at a given time do not internalize their effect on the outside option of workers hired in previous periods.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
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ISSN:0022-3808
1537-534X
DOI:10.1086/591910