Between Search and Walras

33 Pages Posted: 21 Nov 2000

See all articles by Eugene Kandel

Eugene Kandel

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR)

Avi Simhon

Hebrew University of Jerusalem

Multiple version iconThere are 2 versions of this paper

Date Written: July 18, 2000

Abstract

This paper presents a framework that nests search and Walrasian-type models to study the evolution of stationary equilibria in the region between the two approaches. In our model unemployed workers can simultaneously approach n firms every period. We regard n as a proxy for information completeness: the more firms a worker samples, the better informed he is about the labor market conditions. Low n's yield wage dispersion below the marginal product of labor, as in typical search models. As n increases the equilibrium wage structure transforms to the Walrasian-type. Subjected to random shocks, the equilibrium results in of wage rigidity.

We study the evolution of stationary equilibria in a framework that nests search and Walrasian-type models. In our model unemployed workers simultaneously approach n firms every period. Low n yields wage dispersion below the MPL, which is typical for search models. Interestingly, the Walrasian-type equilibrium obtains for relatively small values of n: all firms offer wage equal to MPL, yet unemployment persists. A hybrid equilibrium type prevails for intermediate values of n. Subjected to random shocks, the equilibrium yields wage rigidity. The model yields empirical predictions on unemployment.

Suggested Citation

Kandel, Eugene and Simhon, Avi, Between Search and Walras (July 18, 2000). Available at SSRN: https://ssrn.com/abstract=245551 or http://dx.doi.org/10.2139/ssrn.245551

Eugene Kandel (Contact Author)

Hebrew University of Jerusalem - Department of Economics ( email )

School of Business
Mount Scopus
Jerusalem 91905
Israel
+972 2 588 3137 (Phone)
+972 2 581 6071 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Avi Simhon

Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem 91905, Jerusalem 91905
Israel
+972 2 588 3237 (Phone)
+972 2 581 6071 (Fax)

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