Establishments dynamics and matching frictions in classical competitive equilibrium

Marcelo Veracierto

No WP-07-16, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: This paper develops a Walrasian equilibrium theory of establishment level dynamics and matching frictions and uses it to evaluate the effects of congestion externalities in the matching process and determine the government interventions that are needed to implement a Pareto optimal allocation. The optimal policy, which involves a tax on the creation of help-wanted ads and an unemployment subsidy, is highly contractionary. However, it leads to large welfare gains. The policy also plays an important role in dampening the response of the economy to aggregate productivity shocks.

Keywords: Unemployment; Business cycles; Labor turnover (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Establishments Dynamics and Matching Frictions in Classical Competitive Equilibrium (2008)
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