Search

In the Varian (1980; American Economic Review 70(4) (1980), 651–59) model of price competition, a change from simultaneous to sequential price setting dramatically changes equilibrium strategies, and in the unique symmetric, equilibrium prices are pushed up to the monopoly price. There also exists an asymmetric equilibrium with lower average prices. Our main contribution is to test these predictions in the laboratory. Our data strongly support the qualitative model predictions. However, a fraction of players set low prices in accordance with the asymmetric equilibrium, which is puzzling. We show that the puzzle to a large extent can be resolved by introducing competitive preferences in the model. [ABSTRACT FROM AUTHOR]

Several externalities arise when agents shield optimally to avoid infection during an epidemic. We classify externalities into static and dynamic and compare the decentralized and optimal solutions when agents derive utility from social interaction. For low infection costs agents shield too little; for high costs they shield too much because of a "rat race to shield": they delay social action until other agents contract the disease and society reaches herd immunity. Other externalities drive more wedges between the private and social outcomes. The expectation of a fully effective vaccine that ends the disease faster changes results, reversing excessive shielding. [ABSTRACT FROM AUTHOR]

Partner selection is a vital feature of human behavior with important consequences for individuals, families, and society. We use the term hypergamy to describe a phenomenon whereby there is a tendency for husbands to be of higher rank within the male earnings capacity distribution than their wives are within the female distribution. Such patterns are difficult to verify empirically because earnings are both a cause and an effect of the mating process. Using parental earnings rank as a predetermined measure of earnings capacity to solve the simultaneity problem, we show that hypergamy is an important feature of today's mating patterns in one of the most gender-equal societies in the world, namely Norway. We argue that through its influence on household specialization, hypergamy may explain parts of the remaining gender wage gap. [ABSTRACT FROM AUTHOR]

We discuss the connections between epidemiology models and the search and matching (SAM) approach and draw conclusions about modeling the trade-offs between lockdowns and disease spread. We review the pre-COVID epidemics literature, which was mainly by epidemiologists, and the post-COVID surge in economics papers that use meeting technologies to model the trade-offs. We argue that modeling the decentralized equilibrium with economic trade-offs gives rise to substantially different results from the earlier epidemics literature, but policy action is still welfare-improving because of several externalities. [ABSTRACT FROM AUTHOR]

After falling for four decades, statutory retirement ages are increasing in most OECD countries. The labor market adjustment to these reforms has not yet been thoroughly investigated by the literature. We draw on a major pension reform that took place in Italy in December 2011 that increased the retirement age by up to six years for some categories of workers. We have access to a unique dataset validated by the Italian social security administration (INPS), which identifies in each private firm, based on an administrative exam of eligibility conditions, how many workers were locked in by the sudden increase in the retirement age, and for how long. We find that firms mostly affected by the lock in are those that were downsizing even before the policy shock. The increase in the retirement age seems to displace more middle-aged workers than young workers. Furthermore, there is not a one-to-one increase in the number of older workers in the firms where some workers were locked in by the reform. We provide tentative explanations for these results, based on the interaction between retirement, employment protection legislation and liquidity constraints of firms. [ABSTRACT FROM AUTHOR]

Housing transactions by moving homeowners take two steps—buying a new house and selling the old one. This paper argues that the transaction sequence decisions of moving homeowners have important effects on the housing market. Moving homeowners prefer to buy first whenever there are more buyers than sellers in the market. However, this congests the buyer side of the market and increases the buyer–seller ratio, further strengthening the incentives of other moving owners to buy first. This endogenous strategic complementarity leads to multiple steady state equilibria and large fluctuations, which are broadly consistent with stylized facts about the housing cycle. [ABSTRACT FROM AUTHOR]

In this paper, we study price dispersion in the Norwegian retail market for 766 products across 4,297 stores over 60 months. Price dispersion for homogeneous products is significant and persistent, with a coefficient of variation of 37 percent for the median product. Price dispersion differs between product categories and over time. Store heterogeneity accounts for 30 percent of the observed variation in prices for the median product–month, and for around 50 percent for the sample as a whole. Price dispersion is still prevalent after correcting for store heterogeneity. [ABSTRACT FROM AUTHOR]

We analyze the interaction between intertemporal incentive contracts and search frictions associated with on-the-job search. In our model, agency problems call for wage contracts with deferred compensation. At the same time workers do on-the-job search. Deferred compensation improves workers' incentives to exert effort but distorts their on-the-job search decisions. We show that deferred compensation is less attractive when the value to the worker-firm pair of on-the-job search is high. Moreover, the interplay between search frictions and wage contracts creates feedback effects. If firms in equilibrium use contracts with deferred compensation, fewer firms with vacancies enter the on-the-job search market, and this in turn reduces the distortions created by deferred compensation. These feedback effects between the incentive contracts used and the activity level in the search markets can lead to multiple equilibria: a low-turnover equilibrium where firms use deferred compensation, and a high-turnover equilibrium where they do not. Furthermore, the model predicts that firms are more likely to use deferred compensation when search frictions are high and when the gains from on-the-job search are small. [ABSTRACT FROM AUTHOR]

The global financial recession of 2008-9 as well as historical precedents with financial crises suggest that financial shocks do translate into the labor markets. This paper first documents that financial recessions are different from other recessions in terms of their labor market impact, as they involve a larger employment/unemployment response conditioning on output. Second, it surveys the various mechanisms linking financial shocks to employment adjustment, developing a new theory of the effects of leverage on job creation and destruction. Third, it presents evidence coherent with one of such mechanisms, notably with the prediction that more leveraged firms experience larger job destruction during financial recessions, controlling for the scale of output falls. [ABSTRACT FROM AUTHOR]

We discuss the relative merits of public and private ownership in an incomplete contract framework developed by Hart, Shleifer and Vishney ( HSV). We add two new elements to their model. First, the government may offer cost-sharing contracts when procuring the good. Second, the owner of a private firm may divert resources that increase their own profit/utility but increase total costs. The cost sharing contract allows the government to reduce the private firm's incentives to dump quality in order to save on costs. However, this also leads to resource diversion, which increases total costs. We derive the preferred mode of ownership when the government optimally chooses the power of the cost sharing scheme. We find that the presence of quality-reducing cost reductions only favours government ownership if the scope for resource diversion is substantial. A discussion of when resource diversion is likely to be important is also provided. [ABSTRACT FROM AUTHOR]

This paper proposes a labour 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. We also analyse the interplay between macroeconomic variables and optimal wage contracts. Finally, we show that private information may increase the responsiveness of the unemployment rate to changes in the aggregate productivity level and, in particular, to changes in the information structure. [ABSTRACT FROM PUBLISHER]

We analyze the existence of policy reversal, the phenomenon sometimes observed that a certain policy (say extreme left-wing) is implemented by the “unlikely” (right-wing) party. We formulate a Downsian signaling model where the incumbent government, through its choice of policy, reveals information both regarding own preferences and external circumstances that may call for a particular policy. We show that policy reversal may indeed exist as an equilibrium phenomenon. This is partly because the incumbent party has superior opportunities to reveal information, and partly because its reputation protects a left-wing incumbent when advertising a right-wing policy. [ABSTRACT FROM AUTHOR]

In this article the authors present a research model for job seekers engaged in examining labor markets for job vacancies. The authors note that they set out to examine job searching and wage differentials for identical workers. According to the article the model has three main features: application of competitive search equilibrium, corporations under examination and control of the costs of their job vacancies, and the joint income of employer and employed is subject to a high degree of maximization.

We analyze the optimal (efficiency) wage contract when output is contractible but firms neither observe the workers' effort nor their match-specific productivity. Firms offer wage contracts that optimally trade off effort and wage costs. As a result, employed workers enjoy rents, which in turn creates unemployment. Nonetheless, the incentive power of the equilibrium wage contract is constrained efficient in the absence of taxes and unemployment benefits. We also show that more high-powered incentive contracts tend to be associated with higher equilibrium unemployment rates. [ABSTRACT FROM AUTHOR]

It is well known in personnel economics that firms may improve the quality of their workforce by offering performance pay. We analyze an equilibrium model where worker productivity is private information and show that the firms’ gain from worker self-selection may not be matched by a corresponding social gain. In particular, the equilibrium incentive contracts are excessively high-powered, thereby inducing the more productive workers to exert too much effort and increasing agency costs stemming from the misallocation of effort. [ABSTRACT FROM AUTHOR]

We analyse the efficiency of the labour market outcome in a competitive search equilibrium model with endogenous turnover and endogenous general human capital formation. We show that search frictions do not distort training decisions if firms and their employees are able to coordinate efficiently, for instance, by using long-term contracts. In the absence of efficient coordination devices there is too much turnover and too little investment in general training. Nonetheless, the number of training firms and the amount of training provided are constrained optimal, and training subsidies therefore reduce welfare. [ABSTRACT FROM AUTHOR]

I study the effect of worker heterogeneities on wages and unemployment in a directed search model. A worker's productivity in a given firm depends both on his type and on a worker–firm specific component. Firms advertise unconditional wage offers only. The resulting equilibrium is inefficient, with a too high wage premium for high-type workers, and too few high-type jobs. This reduces the welfare of high-type workers. My findings contrast with the findings in the literature on labor market segmentation, where it is argued that the existence of high-type workers forces down wages and reduces welfare for low-type workers. [ABSTRACT FROM AUTHOR]

In many regulated industries labour unions are strong and there is clear empirical evidence of labour rent-sharing. In this paper, we study optimal regulation in a model in which wages are determined endogenously by wage bargaining at the firm level. A seemingly robust conclusion, at least when worker bargaining power is considerable, is that incentives for cost efficiency should be stronger than in the standard case in which wages do not depend on the regulatory regime. [ABSTRACT FROM AUTHOR]

In this paper, we model a negotiated agreement between the government and a polluting industry. The agreement states that the industry is obliged to reduce aggregate emissions, and in return, the government will not impose taxes on emissions. Our focus is on how the existence of such an agreement influences individual firms' incentives to reduce their emissions when the industry association has no direct control over its members. We show that although the threats of taxes may discipline the firms in the industry and lead to a reduction in emissions, these reductions in emissions are not cost efficient. More specifically, we show that large firms stand for a disproportionally large part of the reductions relative to small firms. [ABSTRACT FROM AUTHOR]

I study workers' incentives to invest in general human capital (education) in the presence of search-induced unemployment. Workers queue for jobs, and firms prefer to hire the most productive applicants because of rent sharing. As a result, an unemployed worker's ranking relative to other job seekers will influence his job-finding rate. This creates a "rat race," where workers invest in education partly in order to achieve a better ranking. In equilibrium, identical workers may have incentives to diversify in terms of education, and the investments in education may exceed the socially optimal level. [ABSTRACT FROM AUTHOR]

Standard theory predicts that if wages are determined by bargaining workers underinvest in human capital, as they bear all the investment costs yet receive only a share less than one of the return. I show that this result depends on the way the investments are financed. I introduce contingent loans, which do not accumulate interest if the borrower is unemployed. When the investments are financed by such loans, the interest payments are regarded as a (negative) part of the surplus the agents bargain over. As a result, a worker pays the same share of the interest as he receives of the return. [ABSTRACT FROM AUTHOR]

In this paper, I construct an equilibrium for markets with frictions, which is competitive in the sense that all agents are price takers and maximize utility subject to a set of market parameters. I show that the equilibrium allocation is socially optimal. I also show how the competitive search equilibrium can be achieved if employers with vacancies can advertise publicly the wages they pay. [ABSTRACT FROM AUTHOR]

A preface for the issue of "The Scandinavian Journal of Economics" is presented.

A preface for the 2007 "The Scandinavian Journal of Economics," is presented.