On the Optimality of Search Matching Equilibrium When Workers are Risk Averse

40 Pages Posted: 6 Jul 2004

See all articles by Etienne Lehmann

Etienne Lehmann

CREST; Catholic University of Louvain (UCL) - School of Economic and Social Research (IRES); IZA Institute of Labor Economics

Bruno Van der Linden

Université Catholique de Louvain - Institut de Recherches Economiques et Sociales; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 2004

Abstract

This paper revisits the normative properties of search-matching economies when homogeneous workers have concave utility functions and wages are bargained over. The optimal allocation of resources is characterized first when information is perfect and second when search effort is not observable. To decentralize these optima, employees should be unable to extract a rent when information is perfect. An appropriate positive rent is however needed in the second case. To implement these optima, non-linear income taxation is a key complement to unemployment insurance. According to the level of the workers' bargaining power, taxation has to be progressive or regressive. These properties are also studied through numerical simulations.

Keywords: unemployment, non-linear taxation, unemployment benefits, moral hazard, search, matching

JEL Classification: J64, J65, J68, H21, D82

Suggested Citation

Lehmann, Etienne and Van der Linden, Bruno, On the Optimality of Search Matching Equilibrium When Workers are Risk Averse (June 2004). IZA Discussion Paper No. 1172. Available at SSRN: https://ssrn.com/abstract=561704

Etienne Lehmann

CREST ( email )

France

Catholic University of Louvain (UCL) - School of Economic and Social Research (IRES) ( email )

3, Place Montesquieu
1348 Louvain-la-Neuve
Belgium

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Bruno Van der Linden (Contact Author)

Université Catholique de Louvain - Institut de Recherches Economiques et Sociales ( email )

3, Place Montesquieu
Louvain-la-Neuve, 1348
Belgium

HOME PAGE: http://perso.uclouvain.be/bruno.vanderlinden/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
62
Abstract Views
788
rank
294,065
PlumX Metrics