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Advances in Search Theory

Paper Session

Sunday, Jan. 7, 2018 1:00 PM - 3:00 PM

Marriott Philadelphia Downtown, Meeting Room 406
Hosted By: Econometric Society

Efficient Job Upgrading, Search on the Job and Output Dispersion

Shouyong Shi
,
Pennsylvania State University

Abstract

A worker's job can improve over time through on-the-job search (OJS) and job upgrading. Incorporating these external and internal job dynamics into a directed search model, this paper analytically characterizes the constrained social optimum and quantitatively evaluates the model. The analysis shows that efficient OJS is front-loaded in a worker's career and stops after a finite number of job switches, but efficient job upgrading is delayed and continues throughout the career. OJS and job upgrading generate a job ladder in output and productivity among identical workers. The endogenous ladder implies frictional dispersion in net output, a positive return to tenure and a cost of job loss. When the model is calibrated, frictional dispersion, the return to tenure and the cost of job loss are large. Moreover, the analysis reveals the importance of an increasing marginal cost of a vacancy in the job type. If the marginal cost of a vacancy were non-increasing in the job type, the social planner would choose the starting job to be high and leave very little room for OJS or job upgrading.

On the Pure Theory of Wage Dispersion

Cheng Wang
,
Fudan University
Youzhi Yang
,
Shanghai University of Finance and Economics

Abstract

We develop a pure theory of wage dispersion - an equilibrium model of search and on-the-job search, where identical firms offer differential wages/contracts to homogeneous workers. Jobs are optimal dynamic contracts that allow firms to match the worker's outside offers or let the job be terminated. Such a model is capable of generating distributions of wage offers that are non-degenerate and unimodal. It can also be calibrated to produce a wage offer dispersion that resembles observations, as well as a dispersion in the wages earned that is consistent with data, in shape and magnitude. We conclude
that counteroffers, missing in most labor market theories, are a key variable in accounting for labor market distributions. In our model, too much counteroffering destroys the dispersion in wages offered, but too little of it renders the theory not being able to explain the observed distribution of wages earned.

Directed Search with Complementarity and Adverse Selection

Seyed Mohammadreza Davoodalhosseini
,
Bank of Canada

Abstract

I study a model in which firms invest in capital and post wages, and heterogeneous workers, who have private information about their skills, choose where to apply. Workers and firms match bilaterally. Each matched agent gets an exogenous payoff from the match before wages are paid. Each of these payoffs displays complementarity in capital and skill. I derive conditions under which the market exhibits PAM, positive
assortative matching. Under these conditions, the firms over-invest in capital compared
with the first best, because capital is used as a screening device.
I show that the fact that firms need to screen workers in the presence of private
information changes the predictions of the model compared to that in the presence of
complete information. In particular, I show that the market economy exhibiting PAM
is not necessary nor sufficient for the complete information allocation to exhibit PAM.

Knowledge Creation and Diffusion with Limited Appropriability

Hugo A. Hopenhayn
,
University of California-Los Angeles
Liyan Shi
,
University of California-Los Angeles

Abstract

Abstract Innovation is central to economic growth, but so is the diffusion of new knowledge. Such is the finding of recent papers that model the interaction between these two forces. Absent in this literature are two key elements that are the focus of this paper. First, we consider the role of frictions in matching innovators and imitators mediating the process of knowledge transmission. Secondly, while most of the recent literature has focused on the case where all surplus from knowledge transmission is captured by the recipient (e.g. pure imitation), we consider all ranges of possible shares that the innovators/recipients can appropriate and their impact on growth. In a simple one period model, we derive a Hosios condition for the optimal share when firms are ex-ante homogeneous. But we also find that as the degree of heterogeneity increases, the share of innovators must decrease to maximize growth, approaching zero for sufficiently large heterogeneity. Our calibrated dynamic model suggests that the optimal share of surplus innovators appropriate should be in the lower end, consistent with weak intellectual property rights.
JEL Classifications
  • A1 - General Economics