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Search, Concave Production, and Optimal Firm Size

Eric Smith ()

Review of Economic Dynamics, 1999, vol. 2, issue 2, 456-471

Abstract: This paper demonstrates that in a free entry search and bargaining economy with concave production firms over-employ. Bargaining allows the worker's wage to depend upon marginal productivity. As such, with strictly concave production, the wage declines as firms employ more labour. Firms react to this declining wage function by choosing an inefficiently large number of workers. However, in equilibrium, fewer firms are likely to enter causing aggregate employment and vacancies to fall. (Copyright: Elsevier)

Keywords: search; Bargaining; labor hoarding; minimum wages; unions (search for similar items in EconPapers)
JEL-codes: J30 J41 J50 (search for similar items in EconPapers)
Date: 1999
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Working Paper: Search, Concave Production, and Optimal Firm Size (1994) Downloads
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DOI: 10.1006/redy.1998.0056

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