Incentives in Competitive Search Equilibrium

Espen Moen () and Åsa Rosén

The Review of Economic Studies, 2011, vol. 78, issue 2, 733-761

Abstract: 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. Copyright 2011, Oxford University Press.

Date: 2011
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Working Paper: Incentives in Competitive Search Equilibrium (2007)
Working Paper: Incentives in competitive search equilibrium (2007)
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