Incentives in Competitive Search Equilibrium

47 Pages Posted: 11 Sep 2007 Last revised: 5 Oct 2009

See all articles by Espen R. Moen

Espen R. Moen

Norwegian Business School; Centre for Economic Policy Research (CEPR)

Asa Rosen

Stockholm University - Swedish Institute for Social Research (SOFI); University of Oslo

Date Written: Oktober 1, 2009

Abstract

This paper proposes a labor market model with job search frictions where workers have private information on match quality and effort. Firms use wage contracts to motivate workers. In addition, wages are also used to attract employees. We define and characterize competitive search equilibrium in this context, and show that it satisfies a simple modified Hosios rule. The model is used to address the "Shimer puzzle" related to the low volatility of the unemployment rate relative to the volatility of output observed in the data. We find that private information may increase the responsiveness of the unemployment rate to changes in productivity and in particular to changes in the information structure.

Keywords: Private information, incentives, search, unemployment, wage rigidity

JEL Classification: E30, J30, J60

Suggested Citation

Moen, Espen R. and Rosen, Asa, Incentives in Competitive Search Equilibrium (Oktober 1, 2009). Available at SSRN: https://ssrn.com/abstract=1013296 or http://dx.doi.org/10.2139/ssrn.1013296

Espen R. Moen (Contact Author)

Norwegian Business School ( email )

N-0442 Oslo
Norway
+47 46410786 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Asa Rosen

Stockholm University - Swedish Institute for Social Research (SOFI) ( email )

SE-106 91 Stockholm
Sweden
+46 8 163 641 (Phone)
+46 8 754 670 (Fax)

University of Oslo ( email )

PO Box 6706 St Olavs plass
Oslo, N-0317
Norway

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