Advertisement versus Motivation in Competitive Search Equilibrium

Katsuya Takii

No 14E009, OSIPP Discussion Paper from Osaka School of International Public Policy, Osaka University

Abstract: We analyze equilibrium wage contracts in a competitive search model where a firm motivates workers to invest in a match-specific skill. If skill is not critical for production, the contract is first best. If critical, the contract coincides with an efficiency wage contract and cannot attain even second best. Unlike standard efficiency wage models, the wage plays a dual role, advertisement and motivation, which induces a novel source of inefficiency: the competition to attract workers forces a wage to be chosen that increases the ex ante utility of workers at the expense of ex post utility.

Keywords: Search Theory; Incentive; Advertisement; Specific Skill (search for similar items in EconPapers)
JEL-codes: E24 J64 M50 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2014-12
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mac and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:osp:wpaper:14e009

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